How Do Private Real Estate Loans Work? A Plain-English Guide for Investors

If you have tried to finance an investment property through a bank, you probably ran into the same problems many investors do: long approval timelines, stacks of personal income paperwork, and rules that were written for people buying a home to live in, not a house to renovate and sell. Private real estate loans exist to solve that mismatch.

This guide explains how private real estate loans work, how they differ from a bank mortgage, and how to decide whether one fits your next deal.

What Is a Private Real Estate Loan?

A private real estate loan is financing for an investment property that comes from a non-bank lender. These loans are built for business purposes: buying a property to renovate and resell, bridging the gap between two transactions, building new homes, or holding rentals for cash flow. They are not used for a home you plan to live in.

That is the core difference: a bank mortgage is designed around your personal income and a 30-year hold, while a private loan is designed around the deal.

Private Lender vs. Bank: The Key Differences

What gets underwritten

A conventional lender starts with you: tax returns, W-2s, debt-to-income ratios. A private lender still reviews the borrower, including your credit profile, but puts heavy weight on the property itself. Key questions include what you are paying for it, what it will cost to renovate or build, what it will be worth when finished (the after-repair value, or ARV), and how you plan to exit the loan.

For rental properties, many private lenders use a debt service coverage ratio (DSCR) instead of personal income. At Major Line Solutions, our Rental (DSCR) loans qualify on the property’s rental cash flow with no personal income verification. You can read more in our guide to how DSCR loans work.

Loan structure built for short holds

Bank loans are typically long-term and are not designed to fund renovation work on a property that is not yet livable. Private loans are often short-term and can include renovation money. For example, our fix and flip loans have a 12-month standard term, with an 18-month option considered case by case, and can fund up to 100% of the rehab budget.

Leverage based on cost and value

Private lenders usually describe leverage in two ways:

• Loan-to-cost (LTC): the loan as a percentage of what you are spending, such as the purchase price or total project cost.
• Loan-to-value (LTV) or after-repair LTV: the loan as a percentage of the property’s value, often its value after the work is done.

A lender will typically apply both limits and lend the lower amount. That protects both of you from over-leveraging a project.

Who you work with

With a large bank, your file can pass through several departments. With a smaller private lender, you can often talk directly with the person making decisions. At Major Line Solutions, you speak directly with the lender, not a call center, and we do not shop your deal around to other lenders.

How a Private Real Estate Loan Works, Step by Step

1. Pre-qualify

Start with a short application covering you, the property, and your plan. Our pre-qualification uses a soft credit pull, so there is no impact to your credit score.

2. Submit the deal

Next, you share the specifics: the purchase contract, your renovation or construction budget, and your expected timeline and exit. If you are buying from a wholesaler, the lender will need the wholesaler’s assignment contract as well as the underlying purchase contract.

3. Underwriting and valuation

The lender verifies the numbers. That usually includes a valuation of the property, a review of your budget against the scope of work, and a check that the property type is eligible. Many programs exclude certain property types. For example, rural properties generally do not qualify for our programs.

4. Closing

Most private loans for investors close in the name of a business entity, such as an LLC. Our fix and flip, rental, and portfolio programs require an entity borrower. At closing, the purchase portion of the loan is funded.

5. Draws during the project

On renovation and construction loans, the rehab money is usually released in stages, called draws, as work is completed. Here is how draws work with us: you submit a draw request through the borrower portal using our SNAP DRAWS program, our team reviews the request, and once it is approved, funds are released to you within 24–48 hours.

6. Exit

Short-term private loans are repaid when you sell the property or refinance it into long-term financing, such as a DSCR rental loan. A clear exit plan is one of the most important parts of any application.

What Do Private Real Estate Loans Cost?

Private loans generally carry higher rates than owner-occupied bank mortgages. You are paying for speed, flexibility, renovation funding, and a lender willing to finance a property in its current condition. For reference, our current starting rates are:

• Fix and flip loans: starting at 8.25%
• Bridge loans: starting at 8.25%
• Ground-up construction loans: starting at 8.99%
• Rental (DSCR) loans: starting at 5.39%

Your actual rate depends on the deal, your credit, your experience, and leverage. When you compare lenders, look at the full cost: rate, points or origination fees, other lender fees, the term, and any extension costs.

Who Private Lending Fits, and Who It Doesn’t

Private real estate loans tend to work well for:

• Investors buying distressed properties that a bank will not finance in their current condition
• Flippers who want purchase and renovation funding in one loan
• Builders financing ground-up projects with a draw schedule
• Rental investors who prefer to qualify on property cash flow instead of personal income

They are usually not the right fit if you are buying a home to live in, if your project has no realistic exit, or if the numbers only work at maximum leverage with no room for surprises. A good private lender will tell you when a deal does not pencil out.

New to flipping? You do not need a track record to get started with our fix and flip program; no minimum experience is required. Ground-up construction is different and requires one to two completed ground-up projects. See all current terms on our loan programs page.

Questions to Ask Any Private Lender

• Will I work directly with the decision-maker, or with a broker or call center?
• Is the credit check at pre-qualification a soft pull or a hard pull?
• How are maximum loan amounts calculated: LTC, ARV, or both?
• How are rehab draws requested, inspected, and paid?
• Is the loan full recourse?

If you want to talk through a specific deal, contact us and you will reach the lender directly.

Frequently Asked Questions

Are private real estate loans the same as hard money loans?

The terms are often used interchangeably. Both describe non-bank, asset-focused loans for investment properties. “Private lending” is a broader label that can include short-term rehab loans, bridge loans, construction loans, and long-term DSCR rental loans.

Can I get a private real estate loan for a home I will live in?

No. Our loans are for non-owner-occupied investment properties only, and most of our programs require you to borrow through a business entity such as an LLC.

Does pre-qualifying hurt my credit?

Not with us. Our pre-qualification uses a soft credit pull, so there is no impact to your credit score. Approval is still subject to full underwriting.

Do I need experience to get a private loan?

It depends on the program. Our fix and flip loans require no minimum experience. Ground-up construction loans require one to two completed ground-up projects, and builders with three or more similar projects may qualify for longer terms and higher leverage.

This article is for general informational purposes only and is not an offer or commitment to lend. All loans are subject to underwriting and approval, and terms are subject to change.