Why It Matters
What are typical private money loan terms for real estate? Most private money loans carry interest rates between 8% and 15%, loan-to-value ratios of 60–75%, and terms of 6 to 24 months. Payments are often interest-only during the loan period, with a balloon payment at maturity. Lenders typically charge 1–3 origination points upfront.
At a Glance
- Typical interest rates: 8–15% annually
- Typical loan-to-value (LTV): 60–75%
- Typical loan term: 6–24 months
- Payment structure: interest-only payments are common
- Origination points: 1–3% of the loan amount paid upfront
- Collateral: the subject property secures the loan
- Documentation: lighter than banks, varies by lender
- Prepayment penalties: rarely imposed
How It Works
Private money terms combine several interlocking components that together define the cost and structure of the loan.
Interest rate is the annual cost of borrowing, expressed as a percentage. Rates reflect the lender's risk tolerance, the property type, and the deal's strength. A well-seasoned borrower bringing a strong BRRRR deal might secure 9%, while a first-timer on a speculative rehab might pay 13%.
Loan-to-value (LTV) caps how much the lender will advance against the property's value. A 65% LTV on a $220,000 property means the lender funds up to $143,000. The borrower must cover the gap from equity, cash, or a second lien — this protects the lender's downside if the deal goes sideways.
Loan term sets the repayment window. Most private lending deals run 6–18 months, aligning with fix-and-flip or BRRRR timelines. Longer 24-month terms appear for slower stabilization projects. These are bridge loans by nature — the exit strategy (refinance or sale) must be realistic within the term.
Payment structure determines what the borrower pays monthly. Interest-only payments keep cash flow manageable during renovation, since no principal reduces during the hold. Some lenders allow deferred interest — no payments at all until maturity — which suits situations where the property produces no income during rehab.
Origination points are the upfront fee, expressed as a percentage of the loan. Two points on a $143,000 loan equals $2,860 paid at closing. Points are a direct cost of capital and factor into the deal's total return calculation.
Prepayment penalties are uncommon in private money but worth confirming. Most private lenders want their capital back quickly and won't penalize early payoff.
Terms are negotiated, not fixed. A borrower with a proven track record and a clean deal can push back on rate, LTV, and points. Relationship lenders — those who have funded a borrower before — tend to offer better terms than lenders meeting the borrower for the first time. Compared to hard money terms, private money often trades lower cost for less process, since individual lenders move on personal judgment rather than underwriting templates.
Real-World Example
James had been chasing a duplex in Columbus, Ohio for weeks before the seller finally agreed to his offer of $187,000. The property needed $44,000 in work before it could be refinanced into a long-term loan.
He reached out to a private lender in his local real estate investor network — a retired contractor who had been lending his IRA funds for three years. They met for coffee and James walked through the numbers. The lender looked at the property, valued it conservatively at $260,000 after repairs, and offered to fund 65% of that — $169,000.
The terms: 10.5% interest-only, 12-month term, 2 origination points paid at closing. James did the math. Monthly interest payment on $169,000 at 10.5% came to $1,479. Over 12 months, that's $17,748 in interest plus $3,380 in points — a total financing cost of $21,128.
James felt the terms were fair given the speed and lack of bank paperwork. He negotiated one small change: the lender agreed to a 15-day extension option at the same rate if the refinance took longer than expected. That clause cost James nothing upfront but eliminated the balloon payment pressure that had killed a deal for him two years earlier.
The rehab came in at $41,300, the refinance closed in month 11, and James walked away with the property in his portfolio and $12,400 returned to him at the cash-out table.
Pros & Cons
- Terms are negotiable — rate, LTV, points, and term can all be adjusted based on the deal and relationship
- Funding speed: private lenders can close in days, not weeks
- Fewer documentation requirements than banks or institutional lenders
- Relationship-based lending rewards repeat borrowers with improved terms over time
- No prepayment penalties in most cases — exit the loan early without penalty
- Higher cost of capital than conventional financing — rates 8–15% significantly exceed bank rates
- Short terms (6–24 months) create exit pressure; refinance delays can force extension fees or default
- LTV caps (60–75%) require borrowers to bring meaningful cash or equity to closing
- Informal lenders may lack consistency — terms can change deal-to-deal even with the same lender
- Origination points add upfront cost that reduces returns on thin deals
Watch Out
Balloon payment pressure. A 12-month term sounds comfortable until the refinance market tightens or the rehab runs long. Always build a realistic exit timeline and confirm the extension option before closing — not after.
LTV limits require real cash reserves. If a lender caps at 65% LTV and the deal has unknowns, the equity cushion can evaporate fast. Model downside scenarios: what happens if ARV comes in 10% lower than expected?
Verbal agreements are worthless. Private money lending is built on relationships, but relationships don't hold up in court. Every term — rate, points, maturity date, extension rights, late fees — belongs in a signed promissory note and deed of trust. No exceptions.
Ask an Investor
The Takeaway
Private money terms define the true cost and risk profile of non-institutional financing. Evaluating a deal means running the numbers on every component — rate, points, LTV requirement, and term — not just the interest rate in isolation. The best private money deals come from relationships built before the deal arrives, giving borrowers the leverage to negotiate terms that make the numbers work.