A private real estate loan provides a financing alternative to traditional bank mortgages, primarily offered by individuals, private investor groups, or specialized lending companies. These loans are secured by the property itself, making them asset-backed rather than relying heavily on the borrower’s credit.

Private real estate loans often serve real estate investors who require quick funding for projects such as house flipping or construction, borrowers with less-than-perfect credit, or those facing unique property challenges that banks may reject. Unlike conventional loans, private lenders focus on the property’s market value and the borrower’s plan to repay, commonly known as the exit strategy.

Typically, private loans fund within days or weeks, making them suitable for time-sensitive transactions. However, they come with higher interest rates and fees than traditional loans, reflecting the increased risk and speed of funding. Loan terms tend to be short—ranging from six months to three years—with the expectation that borrowers refinance or sell the property before repayment.

Private real estate loans differ significantly from traditional bank loans. While banks emphasize income verification, credit scores, and extensive underwriting, private lenders adopt a more flexible underwriting process centered on property collateral. This flexibility extends to loan terms, interest rates, and repayment schedules, allowing customization for specific scenarios.

These loans are often used for:

  • Financing distressed or unique properties that conventional lenders avoid
  • Bridging finance gaps between transactions
  • Quick acquisition of investment properties
  • Borrowers who cannot meet traditional banking criteria

Borrowers should understand costs beyond interest, including origination fees and closing costs, and carefully review loan agreements for penalties or clauses. Having a clear exit strategy is critical to ensure timely repayment.

For more on related financing options, see Hard Money Loan and Bridge Loan.

Sources and Further Reading:

  • Investopedia, “What Is a Hard Money Loan?” Investopedia Link
  • Forbes Advisor, “What Is a Bridge Loan?” Forbes Link
  • NerdWallet, “Private Money Lenders: What They Are & How To Find Them” NerdWallet Link
  • IRS Publication 910, for information on real estate related taxes IRS.gov

By understanding private real estate loans, borrowers can make informed decisions aligned with their investment strategies and financial situations.