What’s the Difference Between a Private Lender and Hard Money Lender?
There are a number of views regarding the difference between a “private lender” and a “hard money lender”. In my opinion, they are about the same – a non-institutional lender offering short-term mortgage loans to real estate investors.
A private lender is an individual investor who lends his/her own money and may not charge any points/origination fees.
A hard money lender is a private lending company that charges points and may get their funds from investors.”
However, the lending companies which many real estate investors refer to as “hard money lenders” will commonly refer to themselves as a “private lender” or a “private money lender.”
Some private lending companies in do not like to be associated with the term “hard money” because they feel it has a bad connotation and makes them seem unprofessional or having extremely high pricing.
Here are some of the benefits of doing business with a private lending company:
- More Professional
- More Reliable
- Rarely runs out of money
- Reputation
- Legal Compliance
- Easy to Find
- Expeienced
Here are some benefits to borrowing from an individual investor:
- May offer higher leverage
- May consider a joint venture or equity position
- May be more flexible in terms
Fees Charged for Private Mortgage Loans
Some private lenders charging various types of fees prior to funding, and it shouldn’t be a deterrent. Some fees are reasonable or common for private lending, and every lending company has their own policies on this matter.
Below are some of the types of fees seen by lenders charging prior to funding short-term private mortgage loans…
Appraisal Fee
Prudent private and hard money lenders will require an appraisal. The fee is typically paid upfront with the application or directly to the appraiser.
Deposit
Deposits are more becoming more common for some private lenders for a residential property loan. Most lenders who do charge a deposit have decided that they are going to fund the loan, but they want a commitment from the borrower. This may be completely reasonable because a private lender may spend a lot of time and effort to complete the process of funding the loan. It would be a huge loss for the lender if the borrower decided to back out of the deal.
Site Visit Fee
For private lenders who only lend in one single market will typically visit every property they fund and meet the borrower as well, without charging any sort of fee for their time and travel. We’ve seen site visit fees range from $100 to $500.
If you are interested in being an individual private money lender please contact me at [email protected].
