The Difference between Hard Money Loans and Private Money Loans
If you’re considering investing in real estate, there are many reasons to appreciate hard money and private money loans. This is especially the case when you compare them to more traditional lending options like bank loans. If you’re agonizing over how to get a home loan with bad credit so that you can take advantage of a fix and flip or other real estate investing opportunity, it may surprise you to learn that hard money and private money lenders don’t care so much about your credit score.
Instead, they’re more interested in the fact that you have sufficient capital. They generally require around 25-35% of the purchase price of the property. They also expect you to have a plan for quick turnaround on the property, as these types of loans tend to require payment in full within just a couple of years. You’ll likely pay slightly higher interest, but this shouldn’t be a deal breaker if your plan is to see a quick return on investment.
There’s more to hard money and private money loans than simply the prospect of buying a home with bad credit. It’s a good idea to understand how these two types of lending are different, even though they’re very similar. Here’s what you should know.
Hard Money Loans
What sets hard money lenders in California apart from their private money peers is that they are typically professionals. This is to say they are money lenders that have the proper licenses to lend money. Because they are in the business of lending funds to property investors like yourself, they’re relatively easy to find through advertisements and professional directories, just for example.
These lenders make it their business to determine whether or not you’re a good candidate for the services they offer. In general, you’ll find the process easier to manage in most cases, much like doing business with banks. There isn’t likely to be much negotiation involved, either.
Private Money Loans
There are pros and cons to choosing private money lenders in California over hard money competitors. For starters, private money lenders are private investors, which makes them harder to find. They don’t tend to advertise, so you have to seek them out, usually through a professional intermediary of some sort.
On the one hand, you might prefer a private money lender because you’ll gain many of the advantages of hard money lenders but with more power to negotiate the terms of your investment deal. On the flipside, however, negotiations could drag out, especially if you don’t know what you’re doing.
By understanding the differences between hard money and private money loans, however, you have the chance to select the option that’s right for you and your project