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Updated almost 3 years ago on . Most recent reply

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Ben Scarborough
  • Realtor
  • Gulf Shores, AL
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Hard Money vs Private Money?

Ben Scarborough
  • Realtor
  • Gulf Shores, AL
Posted

Curious the difference between hard money vs private money lenders? Could someone please explain to me and let me know the pros and cons of each?

Thank You!
Ben Scarborough

Most Popular Reply

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Will Barnard
  • Developer
  • Santa Clarita, CA
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Will Barnard
  • Developer
  • Santa Clarita, CA
ModeratorReplied

These terms are very often co-mingled as if they were the same. THEY ARE NOT. Hard money lenders are licensed lenders in the state or states they lend in, they are exempt from state usury laws and they typically take investments from investors and lend their money out to rehabbers and buy and hold investors. They typically charge points, appraisal fees, and sometimes loan fees and their interest rates are typically above usury limits. Most HML's require significant down payments 20%+, proof of capital reserves of 6 months, and they have extensive loan docs to be signed. Most will take at least 10 days to fund from loan app to fund date. The benefit is that they typically will not loan to you if the deal is bad keeping you more safe as the borrower, the down side is the time, the loan docs, the higher rates, the fees, etc.

Private money lenders are private individuals who are not typically licensed to do real estate loans, they are friends, family, co workers, or people you come into contact with who have interest in investing in real estate passively but do not have the knowledge or expertise to be active in said business. Some are new and have never loaned on RE before while others have and are more seasoned. PML's do not charge points, loan fees, hold a license, and the loan docs are much more simple. They can often loan much quicker if the borrower has experience and has all their ducks in a row. Some may be willing to provide you with a POF to be used for your all cash offers as well, where as HML's will not (other than providing a loan approval which is NOT all cash). The down side to PML's is that in almost all cases, you have a personal relationship with them and as such, if your deal goes wrong and you do not pay them back in full, you can easily ruin that relationship and your own credibility in the industry.

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