Private Money Lending Guide — The Quick Read: Private money lending is business-purpose real estate financing. It comes from an individual, a fund, or a non-bank company instead of a bank. The lender looks at the deal — the property, the plan, the exit — not the borrower’s pay stubs. Most investors use it as a bridge. They buy a property, renovate or stabilize it, then move into permanent financing once it performs. The mechanics sound simple. But the fine print — personal guaranties, state-by-state usury and foreclosure rules — changes the deal more than most first-time borrowers expect.
What Is Private Money Lending, and Who Actually Uses It?
Private money lending is a loan secured by real estate. The underwriting focuses on the deal itself, not the borrower’s income or credit history. The industry has mostly dropped the old “hard money” label. Lenders now prefer “private lending” instead. Scotsman Guide documented this shift through interviews with trade-association leaders pushing the new term. Call it private money, hard money, or residential transition lending. The loan works the same way either way.
What this loan actually costs to carry in your market.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
One fact decides almost everything else here: the borrower is a company, not a person. Every private money loan goes to an LLC or corporation. That company buys, renovates, or holds real estate as an investment. It never goes to a regular buyer financing a home they plan to live in. Because the borrower is a business entity making a business investment, the loan gets reviewed under different rules than the mortgage on your own house.
That single fact drives the whole category. Everything below — leverage tiers, credit floors, personal guaranties, state-by-state quirks — flows from that one distinction.
Here’s what an investor needs to hold onto before going further:
- Private money loans are secured by the property and underwritten on the deal, not personal income.
- The borrower is almost always a business entity — that’s what pulls the loan out of consumer mortgage rules.
- Standard structures run short-term and interest-only, built as a bridge rather than a permanent hold.
- A personal guaranty is close to universal — an LLC alone rarely shields personal assets if the deal goes sideways.
- Leverage caps, credit floors, and even foreclosure remedies vary meaningfully by state.
Key Terms Defined
Loan-to-Cost (LTC): the percentage of a project’s total cost — purchase plus rehab — that the lender is willing to finance.
After-Repair Value (ARV): the property’s estimated value once renovation is complete; lenders often cap leverage against this number, whichever constraint is lower.
Points: an upfront fee charged by the lender, expressed as a percentage of the loan amount and paid at closing.
Interest-Only: a payment structure where the borrower pays only interest each month and returns the full principal at sale, refinance, or maturity.
Personal Guaranty: a signed commitment by the borrower (and sometimes partners) to repay the debt personally if the borrowing entity can’t.
Business-Purpose Loan: a loan made to fund an investment or commercial activity rather than a personal home purchase — the category almost all private money lending falls into.
Deficiency Judgment: a court order allowing a lender to pursue a borrower for the remaining debt after a foreclosure sale doesn’t cover the full balance.
How Underwriting Actually Treats a Private Money Loan
Underwriting on a private money file moves through a few steps. The order matters. Each step narrows what the lender will actually offer.
Step 1 — Confirm the purpose. Private money loans go to entities investing in real estate. They don’t go to regular buyers purchasing a home to live in. Because they’re business-purpose loans, they get reviewed under different rules than a standard owner-occupied mortgage.
Step 2 — Underwrite the collateral, not the borrower. The property’s condition and location matter most. So does its appraised value and the borrower’s exit plan. These carry more weight than a credit score or a tax return. A borrower with thin income can still qualify — as long as they have a clean renovation plan and real equity in the deal. That’s the whole point of asset-based lending. Lendmire’s own coverage of how private money lending actually works walks through this collateral-first review in more depth.
Step 3 — Size the leverage to the deal type and the borrower’s track record. A first purchase-to-rehab deal gets structured differently than a fifth one from the same investor. More on that in the next section.
Step 4 — Document it like a bank loan, negotiated like a private one. The closing produces a promissory note. It also produces a mortgage or deed of trust that secures the lender’s position. A loan agreement spells out the term and repayment structure. These are the same documents a bank uses. They’re just underwritten on different terms.
Step 5 — Layer on a personal guaranty. The borrowing entity is usually a newly formed LLC. It has no credit history and few assets of its own. So most private money loans require the individual owner — and sometimes every partner — to personally guarantee repayment. That guaranty turns the loan into recourse debt. It means the lender can pursue the individual, not just the property, if the collateral doesn’t cover the balance. This point matters before you sign anything. Financing a deal through an LLC does not, on its own, protect your personal assets the way many first-time investors assume.
The Structures and Variations You’ll Run Into
Not every private money loan looks the same. Leverage moves in tiers based on the transaction type and the investor’s track record. Across the wholesale network Lendmire works with, structures generally break down like this:
| Loan Type | Typical Leverage Cap | Term |
|---|---|---|
| Fix-and-flip purchase | Up to 93% of cost / 75% ARV | 6–18 mo, interest-only |
| Bridge purchase (no rehab) | Up to 80% of purchase price | 6–18 mo, interest-only |
| Cash-out / rate-term refi | Up to 65% of value | 6–18 mo, interest-only |
| Ground-up construction | Up to 90% of cost / 75% of completed value | 6–18 mo, interest-only |
A few things sit underneath that table. Fix-and-flip leverage is tiered by track record. Investors with five or more completed projects can see leverage run as high as 93% of total project cost. That drops to around 90% at two or more completed projects. It drops closer to 85% for someone with fewer than two completed deals. Every tier is still capped at 75% of the projected after-repair value — whichever number is lower wins. Ground-up construction follows similar logic. The top leverage tier of roughly 90% of cost is generally reserved for builders with three or more completed projects behind them.
Beyond the purchase-side numbers, the rehab budget itself gets funded separately. Lenders release up to 100% of the rehab budget in draws, paid out against completed work. That’s 100% of the renovation line item — not a purchase loan-to-value figure. There’s no true 100%-of-purchase-price program on this side of the market.
Credit floors run lower than a bank loan, but they’re not gone entirely. Many programs in the network start around a 620 score. Scores below roughly 660 typically carry added conditions. First-time investors — those without a completed-project track record — generally land in the lower leverage tiers until they’ve built a history.
On collateral, the network’s private money programs cover non-owner-occupied residential property, one to four units, plus ground-up construction on projects up to ten units. Commercial buildings, industrial property, raw land or lots, hospitality assets, and owner-occupied homes are not offered on these programs. Loan sizes typically run up to $5,000,000, with larger amounts considered by exception, across 40 markets, including Washington, D.C.
Here’s how the math might work in practice: an investor with three completed flips eyeing a purchase-to-rehab deal would likely land in the roughly 90% loan-to-cost tier. That deal still stays bounded by the 75% ARV ceiling. Whichever cap produces the lower number governs the actual loan amount. That’s the deal-by-deal negotiation private money is built around. There’s no fixed formula that applies to every file.
Where the General Rule Breaks Down
The “it’s business-purpose, so different rules apply” idea holds up most of the time. But not always. And the exceptions carry real consequences for both sides of the loan.
Misclassifying the loan is a genuine legal exposure, not paperwork. Business-purpose status is a documented determination. It’s not a label anyone can slap on an application. Getting it wrong can expose a lender — and in some cases an investor down the chain — to real liability. Compliance-focused legal analysis has raised this point directly.
Owner-occupied rental property has a carve-out most investors miss. A loan to purchase a rental property generally qualifies as business-purpose automatically once the property has three units or more. Drop below that threshold — say, a two-unit purchase where the owner lives in one side — and the loan can still get treated as consumer credit rather than business-purpose. That happens even though the investor thinks of it as a rental deal.
Licensing exemptions for private lenders aren’t uniform. Federal rules under the SAFE Act require most residential mortgage loan originators to be licensed or registered. But a broad practical exemption often applies to people arranging investment, business, or non-owner-occupied loans. Exactly how that plays out still varies by state and by license type. It’s not a single national answer.
Usury caps bend, but the mechanism differs by state. In Washington, a loan made mainly for a commercial, agricultural, investment, or business purpose loses the borrower’s ability to claim a usury defense. That means pricing on those loans can legally exceed the state’s consumer usury ceiling, according to the Washington State Department of Financial Institutions. Other states use a completely different mechanism. Some exempt loans by their purpose. Others exempt based on who arranged the loan — a licensed broker, for example — rather than the purpose alone. The lesson here: don’t assume the usury rule you learned in one state travels with you to the next deal.
Foreclosure remedy and timeline aren’t the same everywhere — and that changes the downside math. States that follow a trust-deed structure typically allow non-judicial foreclosure. That process moves outside the court system. But it generally doesn’t let the lender pursue a deficiency judgment afterward. States that require judicial foreclosure move through the courts instead. Those states do allow deficiency judgments against the borrower. Florida sits at the strict end of that spectrum. Foreclosure there requires a lawsuit in circuit court. No non-judicial path exists, per legal analysis from Jimerson Birr. An investor evaluating risk on a bridge loan in a judicial state is signing up for a longer, more exposed default process than the same deal in a trust-deed state. That’s a real difference in downside risk, not a technicality.
What the Investor Decision Actually Looks Like in Practice
Private money buys flexibility and fast underwriting decisions at a real cost. That tradeoff shows up in pricing structured to make up for asset-based review rather than income verification. It also shows up in terms built around a short hold rather than a permanent one. That tradeoff makes sense for a deal that needs to close on a tight timeline. It also makes sense for a property that a bank wouldn’t touch in its current condition. But it makes far less sense as a permanent hold strategy. The interest-only structure and 6-to-18-month term aren’t built for a buy-and-hold investor planning to own the property for a decade.
Working private money files across a wholesale network for a while surfaces a pattern worth flagging. The investors who get burned aren’t usually the ones who misjudge the property. They’re the ones who misjudge the exit. A rehab that runs long can turn a manageable bridge loan into a forced, expensive extension. So can a refinance that stalls because the property’s rental income doesn’t quite clear the coverage a permanent lender wants. So can a sale that slips past the loan’s maturity date. The files that go smoothly are the ones where the borrower lined up the next step — sale or refinance — before the private money loan ever closed.
That’s usually where DSCR financing enters the picture. Once a property is renovated, leased, and stabilized, most investors refinance out of a short-term private money loan. They move into a long-term rental loan instead. That loan qualifies primarily on the property’s rental income covering the monthly payment, subject to lender guidelines. Lendmire arranges that path for investors moving from a bridge loan into permanent financing. For a side-by-side look at how the two products differ in structure and use case, Lendmire’s breakdown of DSCR loans versus private lending for investors covers the comparison in more detail. The complete DSCR loans guide covers how that permanent-financing side works from the ground up.
Before signing anything, it’s worth revisiting the basics covered in Lendmire’s explainer on what private money lending actually is. Investors still shopping the market can find practical guidance in where to find private money lenders. Tax treatment can depend on how the borrowed funds are used and how the property is held. Investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
If you’re weighing a private money bridge loan against a longer-term rental loan, or you’re ready to refinance a stabilized property, Lendmire can help you compare options based on the property’s income, your credit profile, available leverage, and your investment goals. Reach the team at 828-256-2183 or request a quote directly.
Frequently Asked Questions
Is private money lending the same thing as hard money?
In practice, yes. The industry has been actively retiring the term “hard money” in favor of “private lending” and “residential transition lending.” But the underlying loan structure is identical. Where a real difference sometimes exists, it’s about who’s writing the check — an individual versus an institutional fund — or where the capital sits in the deal stack. It’s not a separate legal category.
Do private money loans always require a personal guaranty?
Not universally, but it’s close to standard practice. Most private and hard money loans layer a personal guaranty on top of the entity-level loan. Lenders do this because a new LLC has no credit history and few assets to pursue if the deal fails. Assume a guaranty applies unless a lender specifically tells you otherwise.
What credit score do I need to qualify?
Credit floors run lower than a conventional mortgage. Many programs start around a 620 score, with additional conditions kicking in below roughly 660. That said, the property, the exit plan, and the borrower’s completed-project track record typically matter more to the underwriting decision than the score alone.
Can I use a private money loan to buy a home I plan to live in?
Generally, no. These are business-purpose loans built for investment property, not owner-occupied purchases. Owner-occupied residential property isn’t offered on these programs. Trying to fit an owner-occupied purchase into a business-purpose structure raises the misclassification risk described above.
What happens when the private money loan’s term ends?
The borrower needs an exit lined up before that date arrives — typically a sale or a refinance into permanent financing. Many investors move a stabilized, rented property into a DSCR loan at that point. That structure qualifies primarily on the property’s rental income rather than personal income documentation, subject to lender guidelines.
Hard money often opens the deal, and a refinance typically closes the chapter – see refinancing out of a hard money loan with a DSCR loan.
About Lendmire
As a non-QM mortgage broker (NMLS# 2371349), Lendmire facilitates DSCR investor loans across 40 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income instead of personal income documentation, subject to lender guidelines, serving LLC-structured portfolios and self-employed borrowers who don’t fit conventional boxes. A two-time Scotsman Guide Top Mortgage Workplace (2025, 2026).
Many investors treat hard money as the acquisition tool and plan the exit up front – see refinancing out of a hard money loan with a DSCR loan.
Lendmire’s Top Mortgage Workplace recognition is documented by Scotsman Guide 2025 Top Mortgage Workplace and Scotsman Guide 2026 Top Mortgage Workplace.
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References
1. Scotsman Guide — Jeff Tennyson, National Private Lenders Association
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.
