Hard-money or private lender

Hard-money and private lenders make short-term loans based mostly on the property. Investors often use one to get back the cash they paid at an auction, or to pay for repairs. These loans close fast but cost more than a mortgage.

When you need one

How to find one

Questions to ask

A hard-money or private lender makes short-term loans backed mainly by the property, not your income. Investors use them to buy and repair a house fast, then sell or refinance. The trade-off is price. Rates are usually well above bank mortgage rates, plus points and fees, and terms are short. Get today’s quotes in writing. Many loans end in a large balloon payment.

These lenders lend on the property’s value, so they may lend to people who can’t actually repay. Fake “private lenders” also collect upfront fees and never fund the loan. In California, the DFPI has ordered several of these fake lenders to stop. NPR reported on a Florida homeowner whose hard-money refinance started at 10% and rose to 12%, with a heavy prepayment penalty; the home headed toward foreclosure.

If you are the one lending, or investing in a hard-money fund, the risks flip. Borrowers default, projects stall, and dishonest brokers can misuse money. In California, a hard-money broker’s collapse cost hundreds of people more than $20 million. In Nevada, Las Vegas hard-money fund investors also lost heavily in the recession.

How they’re paid

Check before you hire

Real stories

Private loan funded a $1.5 million purchase and $600,000 remodel (sale not reported) (2013)

Reuters reported that an investor bought a four-bedroom house in December 2012 for $1.5 million. The money came from a private lender, and the investor put another $600,000 into it. The plan was to list it at $3.295 million. The lender said flippers come to him because banks won’t make short-term, quick loans. He lends about 75% of costs at about 10%. The article reported only the planned asking price, not a sale, so whether the flip made money isn’t known.

Lesson: Private money can make a fast purchase and renovation possible. Whether it pays off depends on the sale, so it works only for investors with enough equity and a realistic resale plan.

Hard-money refinance: 10% rate, then 12%, and a prepayment penalty (2008)

Behind on her mortgage, she refinanced with a hard-money lender. It lent on her equity rather than her income. Payments of about $2,800 a month were a struggle. The lender’s prepayment penalty made it hard to refinance elsewhere. After her rate rose to 12%, she expected to be left with nothing after foreclosure.

Lesson: Hard money is a short bridge for a property with a clear exit. It is not a rescue loan for a homeowner who can’t afford payments.

Paid about $70,000 in fees for a loan that never came (2023)

An unlicensed outfit offered a $200,000 loan. It kept demanding payments before it would release the money. After about $70,000 in fees over a month and no loan, the borrower asked for a refund and was told it was too late. In June 2025, California’s DFPI ordered the company and its agents to stop lending without a license.

Lesson: If a lender wants money before funding, stop and verify its license with the state.

Broker’s hard-money loans collapsed, costing hundreds of people over $20 million (2009)

A hard-money broker arranged more than 270 loans for home-development projects from 2004 to 2007. Prosecutors said he told investors that borrowers had excellent credit when many didn’t. They said he never set up the required trust account and took fees up front. The California Attorney General filed 73 criminal counts in 2009.

Lesson: If you act as a private lender, check the borrower and keep money in a supervised trust or escrow account.