As banks interpret borrowing regulations more strictly and as sellers expect offers with no contingencies (or even cash purchases), hard money, also known as “private money,” has become a niche lending alternative.
“Private money” loans are subject to very few rules and can also move quickly to closing. These types of loans may have higher rates and/or fees, which borrowers are willing to pay because it enables them to quickly secure the asset in this low inventory environment. Private money loans have also grown in popularity because this type of loan decreases the out-of-pocket expense for real estate investors. While these loans do allow for greater liquidity, the funds can only be used for business purposes and may not be used for primary residence homeowners due to regulator rules.
Despite these limitations, the future is bright for private money lenders, as the simplicity of the product is attractive to investors, title agents and sellers.