Hard Money Lender vs. Private Lender: Does It Really Matter?
Let’s discuss the labels “hard money lender” and “private lender.” They’re hot topics in real estate investment circles, but the distinction is not all that important. Here’s why and what I think matters more.
A Little History
Back when I started in this business (1989, to be precise), the term “hard money” didn’t get thrown around like it does now. Sure, there were lenders making tough deals – foreclosures, bad credit cases, the works. But the landscape was different. We had Fannie Mae, Freddie Mac, and a few others, and everyone else was “non-conforming.”
Then came government pressure for more homeownership, followed by “subprime” lending. Boom—every lender who wasn’t playing by the big agency guidelines was a subprime lender. After the 2008 crash, “subprime” became a dirty word. Lenders scrambled to rebrand, entering terms like “non-QLM” and eventually “hard money.”
So, What’s the Difference?
The truth is, it’s all a bit mixed up. Hard money, non-QLM, private lender—people use terms for their own reasons. A deal I might call “private mortgage,” others might label hard money. It boils down to this: Is the borrower in a tough spot or just slightly outside the usual agency loan box? Those are different scenarios, and they shouldn’t get lumped together.
Here’s What Actually Matters: Where’s the Money Coming From?
Forget the labels. Focus on the lender’s funding source:
- The Individual Investor: Lending their own money, calling their own shots. Expect flexibility and potentially higher costs.
- Selling Loans to Wall Street: Typically competitive rates, but stricter terms. They might freeze up if the market changes suddenly (trust me, I’ve seen it happen).
- The Hybrid (Like Us): We use some of our money plus long-term investors’ funds. This lets us stay flexible even in tough markets because we’re not dependent on outside buyers.
The Bottom Line
As a borrower or broker, don’t get hung up on whether a lender calls themselves “hard” or “private.” Ask these questions instead:
- Where does the money come from?
- Who’s really making the decisions?
- How will that affect me if things change in the market?
- Will I be able to talk to someone if issues come up later?
The name on the door matters less than how the lender operates. Choose the lender that fits your situation—hard, private, or anywhere in between!
