Is there a legal difference between hard money and private money?

Not as terms of art — neither is defined in statute, and lenders use both labels loosely for marketing. What does carry legal weight is whether the loan is consumer or business purpose, and whether the lender is licensed in the state where the property sits. A loan on an investment property for business purposes sits outside most consumer mortgage rules; the same loan against a borrower's home usually does not. Ask which one you are signing, because it changes what protections apply.

Why is the interest rate the wrong thing to compare?

Because on a short-term rehab loan the rate is a minority of the cost. Points are charged up front on the full loan amount. Many lenders charge interest on the entire loan including undrawn rehab money — that is Dutch interest, and it can add thousands over a six-month project. Then there are draw fees, inspection fees, extension fees and, on some sheets, a minimum interest or guaranteed-months clause that charges you for time you did not use. Two quotes at the same rate can differ by five figures.

What is Dutch interest?

Interest charged on the full loan amount from day one, including the rehab funds still sitting with the lender. Non-Dutch, sometimes called as-drawn, charges interest only on what has actually been disbursed. On a loan with a large rehab holdback the difference is substantial, and the term sheet does not always name it — you often have to ask whether interest accrues on the undrawn balance.

Do I still need my own cash with a rehab loan?

Yes, and usually more than the down payment suggests. Draws are reimbursements: you pay a contractor for completed work, request an inspection, and get repaid days later. At the peak of a project you can be fronting several times the unfinanced share of the budget. That gap is the most common reason a well-priced flip stalls, and it is invisible in the term sheet.

They are not really competitors. Private money tends to win on a single deal where you have a relationship and can absorb uncertainty about whether the money shows up. Hard money wins when you need it to be there, repeatably, on a timeline you can promise a seller. Investors who do volume usually end up with a hard money relationship for the base case and private money for the deals that do not fit it.

Hard money vs private money

The two terms get used interchangeably, including by people lending the money. The distinction worth keeping is simple: hard money is a business, with a rate sheet and a process that works the same way for everyone. Private money is a person, and the terms are whatever the two of you agree. That difference decides reliability, speed and cost — in that order of importance, and rate is not on the list.

Side by side

	Hard money	Private money
Who the lender is	A lending business — a fund, or a company lending a fund's money	An individual lending their own capital
Terms	A rate sheet. Repeatable, and roughly the same for everyone	Negotiated once, for this deal, with this person
Process	Application, appraisal or BPO, title, draw schedule, inspections	Whatever the two of you agree to
Speed	Predictable — often one to three weeks	Anywhere from days to never
Cost	Higher and itemised — points, interest, draw and inspection fees	Often lower, and usually simpler
Rehab funds	Held back and released in draws after inspection	Negotiable. Sometimes advanced, sometimes not held back at all
Reliability	High. The business exists to keep lending	Depends entirely on one person's circumstances
Scales to a pipeline	Yes — that is the point of a rate sheet	Rarely. Capital and patience both run out

Three costs that are not the rate

Interest on money you never received. Many rehab lenders charge interest on the full loan from day one, including the rehab funds still sitting in their account. That is Dutch interest. Non-Dutch charges only on what has been drawn. The term sheet often does not use either word, so the question to ask is whether interest accrues on the undrawn balance.

The reimbursement gap. Draws arrive after the work is done and inspected, not before. You pay the contractor, then wait days to be repaid. At the peak of a project that can mean fronting several times what the unfinanced share of the budget implies — the single most common reason a profitable-looking flip runs out of money.

Time you did not use. Minimum interest clauses, guaranteed months and extension fees all charge for the calendar rather than the loan. On a project that finishes early, a minimum-interest clause can quietly erase the saving.

Run your own numbers

Fix & Flip Cost of Capital Calculator
What a quote actually costs once points and Dutch interest are in it, both ways.
Rehab Draw Schedule Calculator
Peak out-of-pocket across the project, which is the number that decides whether you can finish.
Scope of Work Calculator
The budget the draw schedule is built from.

Frequently asked questions

Is there a legal difference between hard money and private money?: Not as terms of art — neither is defined in statute, and lenders use both labels loosely for marketing. What does carry legal weight is whether the loan is consumer or business purpose, and whether the lender is licensed in the state where the property sits. A loan on an investment property for business purposes sits outside most consumer mortgage rules; the same loan against a borrower's home usually does not. Ask which one you are signing, because it changes what protections apply.
Why is the interest rate the wrong thing to compare?: Because on a short-term rehab loan the rate is a minority of the cost. Points are charged up front on the full loan amount. Many lenders charge interest on the entire loan including undrawn rehab money — that is Dutch interest, and it can add thousands over a six-month project. Then there are draw fees, inspection fees, extension fees and, on some sheets, a minimum interest or guaranteed-months clause that charges you for time you did not use. Two quotes at the same rate can differ by five figures.
What is Dutch interest?: Interest charged on the full loan amount from day one, including the rehab funds still sitting with the lender. Non-Dutch, sometimes called as-drawn, charges interest only on what has actually been disbursed. On a loan with a large rehab holdback the difference is substantial, and the term sheet does not always name it — you often have to ask whether interest accrues on the undrawn balance.
Do I still need my own cash with a rehab loan?: Yes, and usually more than the down payment suggests. Draws are reimbursements: you pay a contractor for completed work, request an inspection, and get repaid days later. At the peak of a project you can be fronting several times the unfinanced share of the budget. That gap is the most common reason a well-priced flip stalls, and it is invisible in the term sheet.
Which should I use?: They are not really competitors. Private money tends to win on a single deal where you have a relationship and can absorb uncertainty about whether the money shows up. Hard money wins when you need it to be there, repeatably, on a timeline you can promise a seller. Investors who do volume usually end up with a hard money relationship for the base case and private money for the deals that do not fit it.