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Hard Money vs. Private Money: Explained by a Lender

Hard money and private money alternatives have become popular lending options over time, especially since getting loans approved from banks has gotten trickier. Currently, they’re the go-to options in the real estate industry. The loans often involve working with accredited investors with real estate experience, so not only do you get a fair amount of capital, but you also get to work with people that know the business and can provide valuable insight.

Many people find it difficult to distinguish between hard money and private money. In this blog, we’ll discuss the topic in detail.

Understanding the Concept of Hard Money

Hard money loans are a lot more complicated and expensive than conventional loans. For hard money loans, the property itself serves as the collateral. While that may be quite alarming for most real estate investors, you’ll be surprised to know hard money loans are widely popular. Are you wondering why? Well, hard money loans usually end within a year with an interest rate of 12% to 18%. Moreover, you can also receive 2 to 5 points, with each point signifying 1% of the loan amount.

For instance, if you borrow $100,000 and your moneylender charges you 4 points, you’re liable to pay 4% of the total amount, which is $4,000. Unlike with other mortgages, you can also be excused from paying the points until your property is sold.

Hard money loans are offered by privately-owned lending organizations that avoid bureaucratic red tape. These private lenders aren’t bound by state criteria regarding the real estate’s condition.

Understanding the Concept of Private Money

private money creditor is an individual or an entity that offers you cash under their conditions. This form of loan could come from a close relative, an acquaintance, or a company that invests in your venture and expects a profit.

Private money loans don’t have a list of general standards or requirements. The loan terms might differ and are normally agreed upon by the borrower and the lender. As anybody can be a private money creditor, they might not necessarily have the same level of expertise as hard money creditors.

The Main Distinction between the Two Lenders

Hard money financiers are more “conventional” as they have strict underwriting standards and explicitly stated conditions. They frequently employ comparable parameters, such as banks, to determine who gets a mortgage. They also work with customers who might have been rejected previously by lenders.

Private lenders typically offer cash according to their conditions. A private loan could come from a friend, a company, a close relative, or even someone who considers your initiative as a promising venture with an acceptable return on capital.

Flexibility In Terms Of Loans

Lastly, a significant difference between both lenders is the flexibility each offers. Traditional banks operate under stringent rules and regulations. As a result, they cater to every loan application through the same lens without considering their circumstances and investment goals.

On the other hand, hard money lenders operate privately. Therefore, they have the autonomy to customize the loan terms, duration, and repayment requirements according to their client’s financial goals and conditions.

Get In Touch With One of the Most Reliable Hard Money Loan Lending Companies

If you’re looking for reliable hard money loan lenders, look no further than Insula Capital Group. We’re a leading real estate lending company that offers tailored loan solutions, including fix and flip funding, hard money loans, and much more.

Contact us today for hard money loans in New York.