The Quick Read: Hard money is a company-run, asset-based flip loan with set leverage tiers, draws, and a short interest-only term, while private money is a negotiated loan from an individual whose comfort with you sets the terms, so the first suits investors wanting a repeatable process and the second suits those with a real relationship. Neither label has a legal definition, and lenders use both loosely. Compare the two on how each underwrites, what paperwork it needs, and how rehab money is released.
- Hard money is underwritten mainly on the property, the rehab plan, the after-repair value (ARV), and your exit.
- Private money is underwritten on the lender’s trust in you and the deal, so terms vary widely.
- Documents matter most in private deals, because a handshake is not security.
- Both are business-purpose loans that are usually repaid by a sale or a refinance.
- Many investors use one, the other, or both in sequence on a single flip.
Side-by-Side
| Factor | Hard Money Flip Loan | Private Money |
|---|---|---|
| Who lends | A lending business | Individual, family office, or small fund |
| Review basis | Property, ARV, rehab plan, exit | Lender’s comfort with you and the deal |
| Documentation | Contract, scope, budget, ARV comps, entity papers | Whatever the parties agree to, plus note and security |
| Property types | Non-owner-occupied, 1-4 units | Set by the individual lender |
| Entity vesting | LLC with personal guarantee is common | Individual or LLC, lender’s call |
| Rehab funds | Released in draws against finished work | Negotiated, no standard platform |
| Term structure | Short, interest-only, exit-driven | Whatever the note says |
| Reserves | Liquidity reviewed; varies by file | Set by the individual |
The table compares the two options on structure, not price. The hard money column reflects published industry norms, and everything varies by lender, property, and experience. Nothing here is a commitment to lend.
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.
Why the Labels Blur
The two terms are industry slang, not legal categories. No statute defines either one, and no neutral body has set an agreed meaning. The most common practitioner split is about who the lender is. A hard money lender is usually a business whose main work is lending. A private money lender is usually an individual who lends alongside other income or investments.
A useful way to hold it: hard money is one asset-based style inside the much larger world of private, non-bank capital. Every hard money loan is private money in that sense. Not every private loan looks like hard money.
Labels also overlap in marketing. Some institutional flip lenders call themselves private lenders because it sounds more flexible. Some lenders called private run a full professional process. So compare the actual underwriting basis, documents, draw process, and entity rules. The label tells you very little.
Key Terms Defined
After-repair value (ARV): the estimated market value of the home once the rehab is finished, supported by comparable sales.
Loan-to-cost: the loan amount measured against the purchase price plus the rehab budget, rather than against the home’s value alone.
Draw: a staged release of rehab funds after a milestone is verified, usually by an inspection.
Deed of trust or mortgage: the recorded security instrument that ties a loan to the property. A promissory note alone is only a promise to pay.
Personal guarantee: the principal’s own pledge to repay a loan made to their LLC.
When Hard Money Is the Better Fit
Hard money fits the investor who wants a defined process with known tiers and a lender whose whole business is flips. It works best when you can document the deal and want the structure to be the same on your second and fifth flip.
What the network programs look like. Across the wholesale network, a flip loan is sized on loan-to-cost and then capped against ARV. The tiers follow your completed-project count:
- 85% of project cost with fewer than two completed projects.
- 90% of project cost at two or more completed projects.
- 93% of project cost at five or more completed projects.
- Every tier is capped at 75% of after-repair value.
Up to 100% of the rehab budget funds in draws against completed work. That is a rehab-budget figure, not a purchase LTV. Bridge purchases with no rehab reach up to 80% of the purchase price, and cash-out or rate-and-term refinances reach up to 65% of value. There is no true 100% purchase program, so expect to bring cash to closing.
Loan sizes run up to $5,000,000, with larger amounts by exception. Terms run 6 to 18 months, interest-only, with no prepayment penalty. A 620 credit score is the minimum, with additional conditions below 660. First-time investors can qualify at the lower leverage tiers. Collateral is non-owner-occupied residential property of one to four units. These are typical ranges, and they vary by lender, property, and experience.
Picture an investor with three completed flips. That investor lands in the 90% loan-to-cost tier. If the rehab is light and the purchase price is already close to ARV, the 75% ARV cap becomes the binding limit instead of the tier. Experience raises the tier, but the cap still governs. Whether a flip clears the cap is a numbers question you can answer before you write an offer.
Why the draw process helps. Rehab money comes out in stages, tied to inspections. That protects the lender, and it also protects you from overspending ahead of the work. The cost is paperwork discipline. You need a line-item budget, and a contractor who can document progress.
The entity question. Most flip lenders lend to an LLC with a personal guarantee from the principals, subject to lender program eligibility. That keeps the loan business-purpose and separates the flip from your personal finances. It also means you are still personally on the hook. A bona fide entity is generally treated as a business borrower regardless of the loan’s purpose, as one law firm’s business-purpose guide explains.
Hard money tends to be the stronger choice in these situations:
- You are doing repeat flips and want the same process each time.
- You have no personal lender relationships.
- You want rehab funds tied to a verified schedule.
- You need a larger balance than a single individual would likely fund.
Here is where it flips. If the deal is small, the rehab is simple, and a trusted individual will lend on a short note, the structure of a hard money program may be more machinery than you need.
When Private Money Is the Better Fit
Private money fits the investor with a real relationship, a deal the lender understands, and the patience to document it properly. Its biggest advantage is flexibility. The individual can fund a deal that does not fit a lender’s tiers, adjust the structure, or agree to terms that fit your plan. Flexibility is not the same as savings, so do not assume the cost will be lower.
The documents decide everything. An individual’s loan should produce two documents: a promissory note and a security instrument. The note is the promise to repay. The security instrument, a deed of trust or mortgage, ties that promise to the property. As practitioner commentary on private trust-deed lending explains, those are the two core pieces of a private-party loan.
The California Department of Real Estate’s guide to trust deed investments describes the mechanics. The borrower transfers the property in trust to a third-party trustee, who holds it for the lender. That guide is California-specific, so treat it as an illustration of how security works, not a national rule. Without a recorded instrument, a private lender is holding little more than a promise.
Private does not mean unregulated. Individuals who lend for their own account still have to follow federal and state lending and usury rules. California’s regulator notes that even private parties can be treated as creditors under federal rules once they make enough loans. Rules for individuals who finance a limited number of properties also come with exemption criteria, as the National Association of Realtors’ explanation of the SAFE Act and seller financing shows.
Flip loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. That framing applies to both options here.
Where private deals go wrong. The common failure modes are practical:
- Vague terms that no one wrote down.
- A lender who has little experience with delays and gets nervous when a rehab runs long.
- No agreed process for releasing rehab funds.
- No clear plan for what happens at maturity.
In a company-run program, those items are in the guidelines. In a private deal, you and the lender have to write them.
Consider a scenario where a former colleague offers to fund a flip. The relationship is real, and the deal is straightforward. The strongest version of that loan has a written note, a recorded security instrument, a title policy, a budget with agreed draw milestones, and a stated maturity with an extension plan. If the lender will not put those in writing, that is a signal worth heeding.
Private money tends to be the stronger choice here:
- You have a trusted lender who understands the project.
- The structure you need does not match a standard program.
- You are willing to carry more of the diligence work on title, security, and licensing.
- You want to negotiate terms rather than accept a tier.
The flip point is simple. If you do not already have the relationship, private money is a search project, not a financing option. Time spent finding a lender is time not spent finding deals.
A Scorecard for Choosing
Run your deal through these questions. The answers usually point one way.
| Question | Leans Hard Money | Leans Private Money |
|---|---|---|
| Do you have a lender relationship? | No | Yes |
| Is the file easy to document? | Yes | Either |
| Do you want standard draws? | Yes | No |
| Do you need unusual terms? | No | Yes |
| Is this your first flip? | Often yes, at lower tiers | If the lender trusts you |
| Do you plan repeat flips? | Yes | Depends on the lender |
A first-time flipper has a real choice. The lower leverage tiers of a hard money program exist for that investor, and a private lender who knows you well may give more room. The risk with private money for a first deal is leaning on goodwill instead of paperwork.
How to Vet Either Lender
The same diligence applies to both. Ask for the following before you commit:
1. A written term sheet that covers leverage, term, extension options, and what happens if the flip runs long.
2. The draw process: who inspects, how a draw is requested, and what milestones release funds.
3. Entity and guarantee requirements.
4. Whether the loan is secured by a recorded deed of trust or mortgage.
5. Whether a prepayment penalty applies. On network hard money programs, none applies.
6. The documents you must provide up front, such as the contract, scope of work, budget, and ARV comps.
7. How the lender handles a missed milestone or a delayed sale.
A good lender of either type answers these plainly. A lender who avoids them is giving you information too.
Can You Use Both?
Yes, and many investors do, though the sequence matters. Some use a hard money flip loan to acquire and rehab, then pay it off with a sale. Others use a private lender for a small gap that a program leaves open, such as part of the cash needed at purchase. If you do that, read the first lender’s rules on subordinate financing before you sign anything. Some programs limit additional debt on the property.
If the flip becomes a hold, the exit changes. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. The debt service coverage ratio compares monthly rent to the full monthly obligation. The complete DSCR loans guide explains how that works. Clearing a coverage threshold does not mean the property is cash-flow positive, because repairs, vacancy, and management sit outside the ratio.
Tax treatment varies; consult a qualified professional.
A Balanced Verdict
Choose hard money if you want a documented, repeatable process with defined leverage tiers and structured draws, and you are comfortable with an entity and a personal guarantee. Choose private money if you have a genuine lender relationship, need structure a program does not offer, and will document the loan as carefully as a professional lender would. Choose neither if the deal only works with a thin margin and a perfect timeline. Neither source fixes a flip whose numbers do not hold.
The honest middle is that the two options are closer than the labels suggest. The difference that matters is who is writing the rules, a lender’s guidelines or the two of you.
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. Call 828-256-2183 or request a quote to talk through a specific deal.
Frequently Asked Questions
Is hard money the same thing as private money?
They overlap, and neither has a legal definition. Hard money is best understood as one asset-based style of private, non-bank lending. In practice, the difference is usually the lender: a lending business versus an individual. Compare the underwriting basis and documents instead of the name.
Which one is better for a first-time flipper?
It depends on the lender relationship and the deal. Network hard money programs let first-time investors qualify at the lower leverage tiers, which is 85% of project cost with fewer than two completed projects, capped at 75% of ARV. A private lender who knows you may offer more flexible terms. A first-timer without a relationship usually finds hard money easier to access.
Does a private lender need a deed of trust or mortgage?
Securing the loan against the property generally requires a recorded deed of trust or mortgage. A promissory note alone is a promise to pay, not a lien on the home.
Can I close a hard money or private money flip loan in an LLC?
Often, yes, with differences. Most hard money flip lenders in the network lend to an LLC with a personal guarantee from the principals, subject to lender program eligibility. Private lenders vary: some will lend to an individual, others prefer an entity. Settle that early with either type, because it affects how the loan is documented.
What if my flip runs past the loan term?
Network hard money terms run 6 to 18 months, so a delayed sale or refinance is a real risk to plan for. Ask about extension options before you sign. With a private lender, the answer lives in your note, so write the extension terms down instead of relying on goodwill.
For current guidelines and terms on hard money flip financing, request a quote and Lendmire will walk through the program options for your project.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire — NMLS# 2371349 — connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s traditional personal-income documentation, is central to lender review on DSCR files, which works for self-employed operators and portfolios beyond four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Doss Law: Business Purpose Exemption Simplified
2. Dan Harkey: Private Party Investors in Trust Deeds
3. California Department of Real Estate: Trust Deed Investments
4. National Association of Realtors: The SAFE Act and Seller Financing
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 vs Bank Loan Requirements for a Single-Family Flip · Hard Money vs Private Money for a First Flip With No Experience · Can You Get a Hard Money Loan to Flip a 2-4 Unit Multifamily?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.