Personal Loan VS Hard Money Loan

General Landlording & Rental Properties
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Personal Loan VS Hard Money Loan

Dante Givens
Philadelphia, PA · Member since 2017 · 4 posts · 1 vote

Hey BP!

I have a newbie question. Why do most people utilize hard money loans versus personal loans in real estate transactions. I have a great credit score and I receive multiple offers for personal loans which leads me to think I should use a personal loan vs hard money loan for my next flip (FYI I’ve never used either before)

So my question is do personal loans tend to loan less money than hard money lenders? For example most of my offer letters qualify me up to $35k, if I execute the loan will they really only give half of what they offered? Just curious why HMLs are always the first go to instead of personal loans? Is it that you can borrow more with hard money loans vs personal? I’m leaning more to personal loans because I keep receiving offers but seeing that I never used either I’m not sure which one I should use. Ultimately Id like to do a flip and need to borrow between 35-50k, I have a decent salary and great credit.

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Caleb Jordan
Lender · Arlington, TX · Member since 2018 · 465 posts · 184 votes
7y

For lower prices properties that is an option, in fact it will be hard to find hard money loans for less than 50k.

A big difference may be monthly payment. Hard money is usually interest only payments, a ppersonal loan will probably require you to start paying down principle right away

Secondly many hard money loans don't show up on your credit, if you are doing a lot of  properties or several at once that is an advantage.

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  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    I am not aware of any conventional lenders that allow an individual to use personal loans to purchase real estate. There is usually a question on the application that asks if you are using loan money to acquire the property or not and lying about that would be mortgage fraud. 

    If your personal loan is large enough to purchase a property, that may be a different option, but check the wording in the loan application to ensure it is allowed.

    HML's will lend for the value of the property minus your down payment, or sometimes fund the whole transaction and rehab depending on your relationship with that lender.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    @Dante Givens it's absolutely possible to use a private money loan for the entire purchase price. I recommend you check out "Raising Private Capital" by Matt Faircloth.

    The DIY Landlord Book4.7248 Reviews
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  • Caleb Jordan
    Lender · Arlington, TX · Member since 2018 · 465 posts · 184 votes
    7y

    For lower prices properties that is an option, in fact it will be hard to find hard money loans for less than 50k.

    A big difference may be monthly payment. Hard money is usually interest only payments, a ppersonal loan will probably require you to start paying down principle right away

    Secondly many hard money loans don't show up on your credit, if you are doing a lot of  properties or several at once that is an advantage.

    1Reply
  • Dante Givens
    OP
    Philadelphia, PA · Member since 2017 · 4 posts · 1 vote
    7y

    Thank you all! 

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