Private money and hard money loans move fast and cost more than conventional mortgages—but they're designed for situations where speed matters or traditional lending won't work. Understanding the pricing and terms behind these loans helps you negotiate better deals and avoid surprises at closing.
What You're Actually Paying: The Real Cost Breakdown
Hard money loans typically charge 8–15% in annual interest rates, depending on the lender, your creditworthiness, and market conditions. That's 3–7 percentage points higher than conventional 30-year mortgages, which reflect the lender's increased risk and faster capital deployment.
Beyond interest, expect origination fees between 2–5% of the loan amount. A $100,000 hard money loan could cost $2,000–$5,000 just to set up. Some lenders also charge underwriting fees ($500–$2,000), processing fees, and appraisal costs. Unlike traditional mortgages, these aren't always negotiable, so factor them into your total cost before committing.
Points—upfront fees equal to 1% of the loan amount per "point"—add another layer. A loan with 2 points on $150,000 means $3,000 due at closing. Lenders use points to offset lower interest rates or to boost immediate profit, so you'll see variation across providers.
Loan Terms: Shorter and Stricter
Hard money loans are short-term instruments, typically 6 months to 3 years. This isn't a 30-year mortgage; you're expected to refinance, sell, or repay quickly. A fix-and-flip project on a 12-month timeline works well; a long-term rental hold does not.
Most hard money lenders require interest-only payments during the loan period, with the principal due as a balloon payment at maturity. Monthly payments on a $200,000 loan at 10% interest run about $1,667—principal goes nowhere until the end.
Some lenders offer an amortization option to pay down principal gradually, but this typically costs an additional 0.5–1% in interest. Ask directly—not all lenders advertise this option.
Collateral and LTV Matter More Than Your Credit
Private money lenders care about the asset backing the loan, not your FICO score. Loan-to-value (LTV) ratios—how much you're borrowing against the property—determine approval odds and rate tiers.
Standard LTV thresholds:
- 70% LTV or less: Best rates and terms; lenders see cushion
- 70–80% LTV: Standard rates; moderate risk tier
- 80–90% LTV: Higher rates; harder to find willing lenders
- 90%+ LTV: Rare and expensive; some lenders avoid this entirely
A property worth $250,000 with a 70% LTV means a maximum $175,000 loan. The remaining equity ($75,000) is your skin in the game. Lenders expect you to have real money at stake because it changes your behavior—you're less likely to walk away.
Speed and Flexibility: What You're Paying For
Hard money's main selling point is speed. Conventional loans take 30–45 days; private money can close in 7–14 days. If you're bidding on a property at auction or in a competitive all-cash offer scenario, that speed has value.
Lenders often accept alternative collateral (equipment, inventory, liens on other property) and understand non-traditional income. Self-employed borrowers, recent job changes, and complex financial situations don't automatically disqualify you—the property does.
Exit strategy flexibility matters too. Some hard money lenders allow transfers or assume-ability if you find a buyer mid-loan. Others charge prepayment penalties (0.5–2% of outstanding balance) if you pay early. Get these details in writing before funding.
How to Compare Private Money Offers
Request Loan Estimates that show:
- Interest rate (annual %)
- All upfront fees (origination, underwriting, appraisal)
- Points
- Monthly payment structure (interest-only vs. amortized)
- Balloon amount and due date
- Prepayment penalties
- Exit options (refinance, sale, assumption)
Don't accept verbal quotes. Lenders sometimes advertise "8% interest" but bury 5 points and $8,000 in fees that balloon the true cost to 12%+.
Platforms like Mercoly help you compare and find trusted private money and peer lending providers in one place, so you're not hunting across 10 different websites and wasting time on lenders who don't fit your deal.
Frequently Asked Questions
Q: What if I pay off my hard money loan early? Many hard money lenders charge prepayment penalties of 1–2% on the outstanding balance if you repay within a certain window (often the first 12 months). Always clarify penalties before signing; some lenders waive them if you sell or refinance to another private lender.
Q: Can I get a hard money loan with bad credit? Yes—private lenders focus on asset-based lending, not credit scores. A 500 FICO with strong equity in your collateral can qualify; a 750 FICO with 95% LTV may not.
Q: How long does hard money funding actually take? Underwriting and approval typically take 3–5 days; closing another 3–7 days. Total time from application to cash is usually 7–14 days, assuming you've already provided documentation (property details, appraisal, proof of funds for your down payment).
Compare private money and peer lending options today to find the right fit for your deal timeline and budget.