What Is Private Money Lending?

Private lending in real estate, also known as a hard money loan, is a type of alternative financing similar to a non-QM mortgage loan provided by individual investors or private companies rather than banks. 

The property serves as collateral, just like with any other home loan, and can also be cross collateralized with other properties that you own. However, these loans carry higher interest rates and shorter terms than conventional mortgage loans and non-QM loans, such as bank statement loans, DSCR loans, and asset-based loans, making them ideal for some investors. 

Instead of going through a lengthy approval process with a bank or traditional mortgage lender, borrowers can quickly access funds from private lenders who evaluate the investment potential of a property instead of primarily focusing on the borrower’s creditworthiness. Real estate investors and homeowners commonly use private money loans for various purposes, such as: 

  • Purchasing distressed properties
  • Financing renovations or repairs
  • Acquiring properties with quick closing timelines (days, not weeks)
  • Construction loans where funds are needed to complete the project
  • Accessing financing when unable to meet traditional loan and non-qm loan requirements
  • Covering costs while selling a property to buy another property (also known as a bridge loan)
  • Residential apartment complexes
  • Getting second mortgages over $500,000

A loan from private money lenders offers faster access to capital, which can be crucial in competitive real estate markets. Private money lenders often provide more flexible terms and underwriting criteria than banks, allowing borrowers with less-than-perfect credit or unconventional income sources to secure financing based on equity position in the property. 

Private money lending also enables investors to leverage their existing assets and expand their real estate investment portfolios without committing significant amounts of capital by using cross collateralization. 

Keep in mind that private money loans are not for every type of borrower or situation. They’re designed for individuals or entities facing specific circumstances that can make it challenging to obtain traditional financing. 

For instance, real estate investors often require quick access to capital to acquire properties at auction or renovate houses for resale. Private money lenders can provide the flexibility and speed needed to secure these deals, especially when traditional lenders might be reluctant to finance such projects due to their speculative nature or the property’s condition. 

Pros and Cons of Private Money Loans

While private money loans can benefit investors, they’re not suitable for all types of borrowers. Let’s take a look at some pros and cons of private money loans: 

Pros

The benefits of private money loans include: 

  • Speed: Private money loans typically offer faster approval and funding timelines than traditional loans, allowing borrowers to take advantage of auctions and other time-sensitive opportunities. 
  • Flexible terms: Private money lenders often provide more flexible terms and underwriting criteria, accommodating borrowers with unique financial situations or properties that may not meet traditional lending standards. In some cases, a traditional appraisal is not required.
  • Secured by the property: These loans don’t rely solely on the borrower’s creditworthiness or personal income, making them accessible to investors with less-than-perfect credit or unconventional income sources. Hard money loans are collateral-based loans.
  • Customization: Private money lenders can offer personalized financing solutions tailored to investors’ specific needs, including options for renovation financing, construction loans, commercial loans, bridge loans, or short-term financing. 
  • Investment opportunities: These loans enable investors to leverage their existing assets and expand their real estate portfolios.

Cons

The potential downsides of private money loans include: 

  • Higher interest rates: Private money loans often come with higher interest rates than other types of mortgage loans, increasing the overall cost of borrowing. 
  • Shorter loan terms: With shorter repayment terms, private money loans require borrowers to either sell the property or refinance the loan within a shorter time frame, which may add pressure to the investment timeline.
  • Upfront costs: These loans may involve higher upfront costs, including origination fees, points, and other closing costs, which can impact the profitability of the investment.

Private Money Loan Types Available

At Griffin Funding, we offer several different types of private money loans, each of which caters to different needs and goals. The private money lending products we currently offer include:

  • Bridge: A bridge loan is a type of short-term equity-based loan for homeowners and real estate investors who need a quick close or influx of cash while waiting on another property to sell. We offer bridge loans with 0 to 24 month terms. 
  • Construction: Hard money construction loans can help builders and investors cover short-term construction costs on an existing project where permits are in place. We offer construction loans with 6 to 12 month terms. 
  • Rescue Purchase: A rescue purchase loan can provide investors with capital to follow through on a purchase in case their source of funding falls through or pulls out of a deal. We offer rescue purchase loans with 0 to 6 month terms.  
  • Rescue Refinance: A rescue refinance enables investors to turn their trapped equity into cash in a matter of days by paying off and refinancing their current loan and obtaining additional cash. We offer rescue refinance loans with 0 to 6 month terms. 
  • Long-Term Purchase: A long-term purchase loan can help investors improve cash-flow in the short-term while offering a longer repayment period. We offer long-term private money purchase loans with 6 to 12+ month terms. 
  • Long-Term Refinance: A long-term refinance loan allows investors to quickly restructure their current loan terms and rates. We offer long-term private money refinance loans with 6 to 12+ month terms. 

Alternatives to Hard Money Loans

Exploring alternatives to hard money loans can open up a range of financing options tailored to diverse real estate investment needs. Consider these investment property loan alternatives for financing your next project or investment: 

  • DSCR loans: Debt service coverage ratio (DSCR) loans focus on the property’s income potential rather than a borrower’s creditworthiness. They typically require a solid rental income stream to cover mortgage payments and operating expenses. 
  • Cash-out refinance: Cash-out refinancing replaces an existing mortgage loan with a new one at a higher principal balance, allowing investors to access the equity built up in the property. You can use this option to leverage your investments without the high-interest rates and short terms associated with hard money loans. 
  • Home equity line of credit (HELOC): A HELOC is a revolving line of credit secured by the property’s equity. This flexible financing option allows borrowers to access funds as needed, making it best suited for real estate investors who require ongoing access to capital for various projects. Home equity loans (HELOANs) are also available as a fixed-rate lump sum option.

Why Choose Griffin Funding?

Choose Griffin Funding as your trusted private money lender for a seamless lending experience backed by expertise, reliability, and commitment to client satisfaction. With extensive experience in non-QM loans and private money loans, Griffin Funding specializes in providing tailored financing solutions for borrowers who may not meet traditional lending criteria. 

Our positive customer reviews demonstrate our professionalism, transparency, and dedication to delivering results. At Griffin Funding, our experienced professionals work closely with clients to understand their financial situation, offering customized solutions and guidance every step of the way. 

We not only help you obtain private money financing but also monitor your loan to help you convert it into a traditional or non-qm loan with better terms when the time is right.

Partner With a Trusted Private Money Lender

Whether flipping properties, investing in rentals, or undertaking new developments, Griffin Funding provides the expertise and support you need to seize opportunities with private money lending. With competitive rates, tailored solutions, and a commitment to transparency and integrity, Griffin Funding ensures a seamless lending experience. 

Choose Griffin Funding for your next real estate investment and discover how our expertise, dedication, and personalized approach in private money lending and investment loans can help you take the next step toward success in real estate.