The Quick Read: It depends on what the deal needs: a direct hard money lender usually fits flippers who want a documented draw process, defined leverage tiers and a repeatable setup, while a private lender usually fits flippers who have a personal relationship, want to negotiate and can live with looser structure. The two labels overlap, so judge any lender by its documents, draw rules and exit terms, not by what it calls itself.
- A direct lender is a company that lends as its business. It usually brings written guidelines, a draw schedule and the ability to fund your second and tenth deal.
- A private lender is usually an individual or small group lending its own money. Terms are whatever you both agree to, which can help or hurt.
- Private money is not automatically cheaper, and hard money is not automatically rigid. Compare the full terms of each offer.
- Both need your own cash. Flipping stays cash-intensive even when the lender funds most of the project.
- A broker can shop several direct lenders for you. Ask how the broker is paid before you commit.
What Is the Difference Between a Private and a Direct Hard Money Lender?
A direct hard money lender is a company that makes short-term loans secured by the property. A private lender is usually a person or small group lending its own capital. Both are non-bank, asset-focused sources. The difference is mostly who the lender is and how formal the process feels.
What this loan actually costs to carry.
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.
The definitions blur in practice. Some people use private money and hard money as synonyms. Some lenders call themselves a hybrid. Others treat private money as a relationship loan and hard money as a product. None of that changes what you should check. Look at who decides on your file, who holds the money, and what the paperwork says.
There is a third party worth knowing. A broker does not lend its own money. A broker, which is a middleman that arranges your loan with a lender, shops your deal to lenders that fund it. Lendmire works as a broker, arranging hard money through select lenders in its wholesale network across 41 markets, including Washington, D.C.
Here is how the three compare in practice.
| Factor | Individual private lender | Direct hard money lender | Broker |
|---|---|---|---|
| Whose money | Their own | Company capital or credit line | Lenders’ |
| Main focus | You and the deal | Property, plan and exit | Matching deal to lender |
| Structure | Negotiated one-off | Written guidelines | Varies by lender used |
| Draw control | Often informal | Usually a set process | Set by funding lender |
| Repeat use | Depends on their appetite | Built for repeat borrowers | Many lenders, one contact |
| Best fit | Relationship, flexible deal | Standard flip, clear tiers | Comparing several options |
How Does the Money Behind the Lender Change Your Experience?
The source of the capital shapes how a lender behaves when something goes wrong. A lender using its own balance sheet can bend rules but may run out of money. A lender funded by a credit line follows that line’s rules. An individual lender may simply get nervous.
An individual with a few hundred thousand to deploy can fund one or two flips at a time. After that, the money is tied up. That is fine for a first deal. It is a problem if your plan is to flip every quarter.
A company that lends as its business has to keep funds moving. That tends to produce standard documents, standard leverage tiers and a draw schedule you can read before you sign. You trade some negotiability for predictability. For most repeat flippers, predictability is worth more.
A private lender who knows you can still be the better choice. They may accept an odd property, a thin track record or an unusual structure that a company’s guidelines would not allow. You just carry more of the burden of documenting the deal properly.
What Do Direct Hard Money Programs Actually Look Like?
Across the wholesale network Lendmire works with, flip leverage is tiered by how many projects you have completed. Most of what follows varies by lender, property, and experience, and nothing here is a commitment to lend.
- Fix-and-flip: typically 93% of project cost at five or more completed projects, 90% at two or more, and 85% with fewer than two. Every tier is capped at 75% of after-repair value.
- Bridge purchase with no rehab: up to 80% of the purchase price.
- Cash-out or rate-and-term refinance: up to 65% of value.
- Rehab budget: up to 100% of the rehab budget funds in draws against completed work. That is a rehab-budget figure, not a purchase loan-to-value.
- Loan size: up to $5,000,000, with larger loans by exception. Smaller balances vary by lender.
- Term: typically 6 to 18 months, interest-only, with no prepayment penalty. There are no multi-year options on this program.
- Credit: a 620 minimum score, with additional conditions below 660. First-time investors generally qualify at the lower leverage tiers.
- Property: non-owner-occupied residential, 1 to 4 units. Ground-up construction runs up to 10 units.
Note the phrase after-repair value, or ARV. It is the lender’s estimate of what the property is worth once the work is done. Loan-to-cost means the loan is a percentage of what you pay for the property plus the rehab budget, not a percentage of value. The top tier is reserved for experienced investors, and no program funds 100% of the purchase.
An individual private lender can offer any of these figures or none of them. That flexibility is the entire point, and the entire risk.
Should a Flipper Use a Private or Direct Hard Money Lender for a First Deal?
For a first deal, a direct lender at the lower leverage tier is the more predictable path, and a private lender is the better path only if you have a real relationship. Some private lenders will not lend to someone with no completed deals. Others favor newer investors over a company’s formal tiers.
Direct lenders publish tiers. You can see in advance that fewer than two completed projects means the 85% of project cost tier, capped at 75% of ARV. You can plan your cash around it. That is useful when you are new and every surprise costs you.
A private lender judges you as a person. If they like you and the numbers, you may get better terms than a program would give a beginner. If they do not, you get a polite no with no appeals process. Most new flippers should keep both doors open and see which one answers.
What Does a Flip Look Like Under Each Path?
Run a modeled example with percentages only. These are illustrative assumptions, not program quotes. Say the purchase price plus the rehab budget equals 75% of the ARV. Say you are working with a direct lender.
- Fewer than two completed projects (85% of project cost): the loan lands around 64% of ARV. Your own cash is roughly 11% of ARV, before closing and holding costs.
- Two or more projects (90% of project cost): the loan lands around 67.5% of ARV, leaving roughly 7.5% as your cash.
- Five or more projects (93% of project cost): the loan lands around 70% of ARV, leaving roughly 5% as your cash.
All three sit under the 75% of ARV cap. Notice what the tiers do. Experience does not make the property worth more. It moves cash from your pocket to the lender.
Now picture the private lender version. You and a relative or investor agree to lend a share of the purchase and rehab, with terms of your own design. The percentage could be higher or lower. Nothing stops you from agreeing to something your own budget cannot survive. The upside is that you can tailor interest-only periods, extension rights and draw timing. The downside is that you are the one who has to think of everything.
Two more cost notes. A broker adds a party, and a party can add fees. A slow or messy process adds holding costs to a flip, because every extra month of carrying the property comes out of your profit. Compare the full cost of each offer, not just the headline term. Tax treatment varies; consult a qualified professional.
How Do Rehab Draws Work, and Who Controls Them?
A draw is a release of rehab money after a stage of work is finished. Most direct programs fund the renovation budget in draws, not at closing. Up to 100% of the rehab budget funds against completed work in the network’s programs.
Here is the practical sequence:
1. You close and buy the property.
2. You start the work and pay contractors from your own cash.
3. You request a draw and the lender checks the progress, often with an inspection.
4. The lender reimburses you for the completed work.
The lag matters. You need cash for the first phase of rehab plus a buffer, because reimbursement trails your spending. Some lenders charge a fee per draw. Some release a first draw right after closing, in exchange for more money from you up front. That varies by lender, so read the draw terms before you sign.
Private lenders vary widely. Some have no draw system at all and simply wire money when you ask. That sounds easier, and sometimes it is. But if the lender never inspects, you have no outside check on your own budget either. If you go private, put the draw mechanics in the note: how you request, how fast the lender must respond, and what happens if they miss a request.
What Paperwork and Rules Apply?
A flip loan is a business-purpose loan, and the paperwork should look like one. Hard money loans for flips are business-purpose investor loans, so they are reviewed differently from a standard owner-occupied mortgage. Under Regulation Z’s business-purpose exemption, credit extended primarily for a business purpose falls outside the rules written for consumer mortgages. The Federal Reserve’s published commentary adds that the creditor decides the primary purpose case by case.
The practical takeaway is simple. The exemption does not mean no rules. State licensing, usury and securities rules can still apply, and they vary by state. It also does not cover consumer-purpose loans, such as a home you plan to live in. Those are not flip loans.
For an individual private loan, insist on proper documents:
- A promissory note stating the amount, term, payment terms and what happens on default.
- A recorded mortgage or deed of trust, depending on your state, which is the security instrument that ties the loan to the property.
- Property insurance naming the lender as mortgagee.
- A title policy, so the lender’s lien position is clear.
- A review by a lending attorney in your state.
Informal private loans often skip these. That feels cheaper on day one. A loan with sloppy documents can stall a closing or a sale, and a non-compliant loan can create enforceability problems for both sides. A lender who cannot produce clean documents is a risk to your exit, not just to their own money.
When Does a Broker Beat a Direct Lender?
A broker beats a direct lender when you want to compare several programs, when your deal does not fit one lender’s guidelines, or when you do not yet know which lender suits your experience level. A direct lender beats a broker when you have a standing relationship and the deal fits that lender’s sheet.
Neither is always cheaper. A broker is paid either by the lender or by you, and the arrangement should be explained in writing before you commit. Ask for the full cost of the loan from each option and compare them side by side. Do not assume the extra party costs more or less.
The strongest brokers see many lenders’ guidelines at once. They can tell you which programs allow a first-time flipper, which cap leverage at the low tier, and which draw processes will tie up your cash. That is the real value: knowing which lender fits, not adding a step.
What Happens When the Deal Goes Sideways?
Each lender type behaves differently under stress, so test your plan against four common problems.
A low appraisal. A direct lender sizes the loan to its estimate of cost and ARV, capped at 75% of ARV. If the value comes in lower, the loan shrinks and you cover the gap with cash. A private lender might renegotiate, or might hold firm. Ask in advance what happens.
A rehab overrun. Draws fund against the approved budget. If costs rise, the extra comes from you. An individual lender may offer more money, but only if they have it and want to. Build a buffer into your own cash plan.
A slow sale. Terms typically run 6 to 18 months on the direct program, interest-only. If the property sits, the loan keeps running. Ask whether extensions exist and what they cost. They vary by lender, and no extension is automatic.
An individual lender who gets nervous. A person can change their mind, face a personal cash need, or want to renegotiate midway. A company has contracts and a process. If you rely on an individual, ask what they would do if the market softened.
Every one of these is an exit problem. Short terms mean you need a sale or a refinance plan before you close, not after.
Can You Use Both on One Flip?
Yes, and many investors do. One common structure is to use a direct lender for the main purchase and rehab, then add private money for the cash you would otherwise bring yourself. Another is to use a private lender for the first deal, then move to a direct lender once you have a few completed projects to point to.
Be careful with stacking. Two lenders can both want a lien on the same property. The first lender’s documents may restrict a second loan. Get every lender’s written consent before you agree to a combined structure.
What If You Keep the Property as a Rental?
Many investors refinance out of hard money once the property is renovated and leased. A DSCR loan, short for debt service coverage ratio loan, qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. It is a rental product, not flip financing, so the property generally needs to be stabilized and leased first. Clearing a DSCR test also does not mean positive cash flow. Repairs, vacancy, management and utilities sit outside the calculation.
The right bridge lender is one whose exit lines up with that plan. Lendmire’s complete DSCR loans guide explains how coverage ratios, leverage and credit tiers work for rental loans.
Key Terms Defined
After-repair value (ARV): the lender’s estimate of the property’s worth once renovations are finished.
Loan-to-cost: the loan as a percentage of purchase price plus rehab budget, not of value.
Draw: a release of rehab funds after a stage of work is completed and checked.
Direct lender: a company that lends its own or credit-line money and makes the decision on your file.
Private lender: usually an individual or small group lending its own capital on terms you negotiate.
Security instrument: the recorded mortgage or deed of trust that ties the loan to the property.
Bridge loan: a short-term loan that covers you until you sell or refinance.
Frequently Asked Questions
Are hard money and private money the same thing?
Not always, but the terms overlap. Many people use them for the same loan. A useful rule is to check who the lender is, how it decides, and what paperwork it uses. A company with written guidelines acts like a direct hard money lender. An individual lending its own cash is a private lender, whatever the label.
Can a first-time flipper use a direct hard money lender?
Often yes, at the lower leverage tiers. In the wholesale network Lendmire works with, fewer than two completed projects typically means 85% of project cost, capped at 75% of ARV, with a 620 minimum credit score and extra conditions below 660. Terms vary by lender, property and experience, and nothing is a commitment to lend.
Is a direct lender always cheaper than a broker?
No. A direct lender avoids an extra party, but a broker can compare several programs and find a better fit for your deal. The only reliable test is the full cost of each offer, including how the broker is paid. Ask for both in writing.
What happens if my appraisal comes in low?
The loan generally shrinks, because it is sized to value and cost and capped at 75% of ARV. You would cover the difference with cash or renegotiate the purchase. Ask any lender, direct or private, what happens in that case before you sign.
Can I use a private lender for the rehab and a direct lender for the purchase?
Sometimes, but only with consent from every lender involved. Two lenders can conflict over lien position, and the first lender’s documents may restrict additional loans. Get the structure approved in writing up front.
Next Step
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. The brokerage’s illustrative calculator can give you a rough starting estimate. Reach the team at 828-256-2183 or request a quote at Lendmire’s quote page.
A strong lender choice for a flip is often one whose exit terms still work if the sale takes longer than you planned.
About Lendmire
Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that helps arrange investor financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR eligibility is generally reviewed by the lender around the property’s rental income rather than personal income documentation, subject to lender guidelines — which works for self-employed investors, LLC operators, and portfolios above four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB Regulation Z § 1026.3: Exempt transactions
2. Federal Reserve: CFPB official staff commentary on Regulation Z
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Hard Money Overrun Documentation for a BRRRR Rehab Into a DSCR Loan · How a Lender Reads a Seller-Carried Note on a Hard Money Loan · Hard Money Loan Requirements to Exit Seller Financing or Subject-to
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.