Private Mortgages Explained: Types, Rates, Fees and How to Get One

What is a private mortgage and how does it work?

A private mortgage is a loan secured by real estate that comes from a source other than a traditional bank or a government-backed program. The lender might be a private company, a loan fund, a group of investors or an individual. The loan is secured the same way a bank mortgage is. The borrower signs a promissory note, which is the promise to repay, and a mortgage or deed of trust, which gives the lender a lien on the property. If the borrower stops paying, the lender can enforce that lien through foreclosure.

What makes a private mortgage different is who sets the rules. A bank that plans to sell its loan to Fannie Mae, Freddie Mac or a government program has to follow that program's guidelines for income, credit, debt-to-income ratio and property type. A private lender lends its own money, or money raised from its own investors, so it writes its own guidelines. That lets the lender focus on the parts of the deal that matter most to it, usually the value of the property and the borrower's plan for repaying the loan, instead of relying only on tax returns.

In practice it works like this:

1. The borrower brings a deal and a purpose for the money.
2. The lender looks at the property, its current value and its value after any planned improvements, and the borrower's experience and credit.
3. The lender offers a loan amount, an interest rate, an origination fee, a term and a repayment structure.
4. If the borrower accepts, a title company or attorney handles the closing and records the lien, and the lender funds the loan.

Many private mortgages are interest-only with a balloon payment at the end. The borrower pays only interest each month and owes the full principal when the term ends.

Is a private mortgage the same as private mortgage insurance?

No, and the two phrases are easy to confuse. A private mortgage is a loan from a private source. Private mortgage insurance, or PMI, is an insurance policy that protects the lender on a conventional loan when the borrower puts down less than 20 percent. A private mortgage usually has no PMI at all. The lender protects itself with a lower loan-to-value ratio, a larger down payment, a higher interest rate and fees.

Are all private loans the same?

No. Private lending covers a wide range, from a family member lending money for a home purchase to an institutional fund lending millions on a commercial building. Rules differ by state and by whether the loan is for a business purpose or a personal home. Loans on a primary residence carry far more consumer-protection regulation than loans made to a business entity to buy or renovate an investment property. Anyone considering a private mortgage should confirm which category their loan falls into and talk to a real estate attorney before signing.

Who should get a private mortgage?

A private mortgage fits best when the borrower has a good reason that a bank loan cannot serve, a clear plan to repay and the financial strength to absorb a higher cost. The most common good candidates are:

• Investors who need speed. An auction, a competitive offer or a time-sensitive purchase can require a closing in days. Hard money and bridge lenders commonly advertise closings in roughly 5 to 14 days, compared with the several weeks a conventional mortgage commonly takes.
• Investors buying properties a bank will not lend on yet. A house that needs major repairs may not meet conventional appraisal standards. A private lender can fund the purchase and the renovation, and the borrower refinances into long-term financing once the property is finished and leased or sold.
• Self-employed borrowers. A business owner who writes off significant expenses may show low taxable income even though cash flow is strong. A bank statement loan can qualify that person from deposits instead of tax returns.
• Borrowers in a short transition. Someone who needs to buy a new property before selling the old one can use a bridge loan to cover the gap, as long as the sale is realistic.
• Buyers and sellers who agree to owner financing. A seller who owns a property free and clear may finance the buyer directly and earn interest.

The common thread is a temporary or specialized need backed by a defined exit.

When should you consider a safer alternative first?

Anyone who qualifies for a conventional, FHA, VA or other government-backed mortgage should price those loans first, because they usually offer lower rates, longer terms and more consumer protections. For scale, Freddie Mac's weekly survey put the average 30-year fixed rate at 6.69 percent in its August 6, 2026 release. Hard money loans are most commonly quoted between 10 and 15 percent, plus origination points. On a $300,000 loan, that gap is roughly $10,000 to $25,000 more interest per year, before points. That is the cost of speed and flexibility, and a borrower who needs neither should not pay it.

A private mortgage is also a poor fit when the borrower has no realistic way to pay off a short-term loan. Many private loans are interest-only with a balloon payment due in 6 to 36 months. If the plan depends on a refinance, a sale at a certain price or a project finishing on schedule, and any of those slips, the borrower can face extension fees, default interest or foreclosure. Write down three exit routes, not one: a sale, a refinance and a fallback using your own cash. If you cannot name at least two that still work when things go wrong, consider a safer option.

Safer alternatives to look at first:

• A conventional loan with a larger down payment
• An FHA 203(k) or other renovation loan for a home that needs work
• A home equity line of credit on a property you already own
• A credit union or community bank portfolio loan
• A longer closing timeline or a seller concession that lets a conventional loan work

A borrower buying a primary residence should be especially careful. Consumer loans on a primary home carry stricter protections, and a short-term balloon loan on the home you live in carries the most personal risk.

What are the main types of private mortgage loans?

Owner financing (seller financing)

In owner financing, the seller acts as the lender. The buyer signs a note and a mortgage or deed of trust to the seller and makes payments to the seller instead of a bank. Common structures include a down payment, monthly payments based on a 20 or 30 year amortization and a balloon after a few years, when the buyer is expected to refinance with a bank. Owner financing can work when the seller owns the property free and clear or with a low balance. A seller who still owes a bank usually has a due-on-sale clause to consider.

Federal rules affect owner financing more than most people expect. Under the Dodd-Frank framework as implemented by the Consumer Financial Protection Bureau, sellers who finance dwellings can be treated as loan originators and, in some cases, as creditors. Practitioner summaries describe two common exclusions:

• One-property exclusion. For a natural person, estate or trust that finances only one property in a 12-month period. It generally allows a balloon payment as long as there is no negative amortization and the rate is fixed or stays fixed for the first five years.
• Three-property exclusion. For sellers who finance up to three properties in a 12-month period. It generally requires a fully amortizing loan with no balloon and a good-faith determination that the borrower can repay.

Both have conditions, the details have changed over time and they vary by state. Have a real estate attorney review any seller-financed deal.

Hard money loans

A hard money loan is a short-term, asset-based loan from a private lender, typically used by investors to buy, renovate or hold property. The loan is underwritten mostly on the value of the property and the borrower's plan, with less weight on income and credit than a bank gives. Public lender guides commonly show:

• Interest rates: most often 10 to 15 percent, with some sources reporting a mid-2026 national average around 10.4 percent and others describing a range from 8 to 18 percent depending on leverage and experience.
• Points: most often 2 to 3, with a wider range of 1 to 5.
• Terms: 6 to 24 or 36 months.
• Leverage: loan-to-value limits commonly 65 to 75 percent, with the borrower putting down 25 to 35 percent.
• Speed: closings in 5 to 14 days.

Leverage matters for price. One 2026 guide describes loans at roughly 55 to 60 percent loan-to-value pricing around 10 to 11 percent, and loans near 70 to 75 percent pricing around 13 to 15 percent. Payments are usually interest-only, with the principal due at the end. Hard money fits fix-and-flip projects, purchases of properties that need work and quick closings. It fits poorly when the borrower has no clear exit. See our hard money loan guide for how we approach it.

Bridge loans

A bridge loan is a short-term loan that covers the gap between a need for funds now and a longer-term source of funds later. In residential real estate, the classic example is buying the next property before the current one sells. In investment real estate, a bridge loan can cover the time between acquiring a property and refinancing it into permanent financing once it is stabilized. Private bridge loans typically carry higher rates and fees than long-term loans because the term is short and the risk is higher. They are often interest-only. The key risk is the exit, because a bridge loan is only as safe as the thing that pays it off. See bridge loans for more.

Portfolio loans

A portfolio loan is a mortgage the lender keeps on its own books instead of selling to Fannie Mae, Freddie Mac or another investor. Because the lender is not bound by secondary-market guidelines, it can set its own rules. Portfolio loans are commonly offered by community banks, credit unions and some private lenders. They can work for borrowers with non-standard income, unusual properties or several financed properties, because the lender can make exceptions the standard programs do not allow. Rates and terms vary widely by lender, and relationship and local knowledge matter more than they do for an agency loan.

Bank statement loans

A bank statement loan is a non-qualified mortgage designed for self-employed borrowers and others whose tax returns understate their income. Instead of tax returns, the lender reviews 12 or 24 months of personal or business bank statements, adds up the deposits and applies an expense factor to estimate qualifying income. A common default assumes business expenses consume about half of business deposits, although a lender may accept a CPA-prepared profit and loss statement showing a lower ratio. Lender guides describe:

• Credit scores: typical minimums of 620 to 680
• Down payment: roughly 10 to 30 percent
• Debt-to-income: limits up to about 50 percent
• Reserves: 3 to 12 months

Rates are higher than conventional loans. Published estimates of the premium vary a lot, from about half a point to three points above conventional, and one May 2026 rate table showed bank statement loans around 7.30 to 8.80 percent when a 30-year conventional fixed rate was about 6.80 percent. The 24-month version generally prices better than the 12-month version because it shows a longer track record.

These loan types overlap. A lender might offer a bank statement loan from its own portfolio, or a bridge loan funded by private investors. What matters to a borrower is the same in every case: total cost, term, repayment structure and the plan for paying it off.

What are typical private mortgage rates, fees and terms?

Private mortgage pricing has four parts: the interest rate, the origination fee, other closing costs and the structure of the term.

Interest rates

They are higher than conventional rates because the loans are shorter, less standardized and riskier for the lender. Freddie Mac's survey showed the 30-year fixed rate averaging 6.69 percent in its August 6, 2026 release, up slightly from 6.66 percent the week before, with the 15-year at 6.01 percent. In the same period, hard money lenders most commonly quote 10 to 15 percent. Bank statement and other non-QM loans usually sit between the two, often a point or two above conventional rates. A borrower's rate depends on loan-to-value, credit, experience, property type, location and the exit plan. Lower leverage and stronger experience get lower pricing.

Points and fees

Hard money origination fees are most commonly 2 to 3 points, meaning 2 to 3 percent of the loan amount. On a $300,000 loan, two points is $6,000 and three points is $9,000. Other costs include an underwriting or processing fee, appraisal or valuation costs, title and escrow charges, recording fees, insurance and, for renovation loans, draw inspection fees each time money is released. Some lenders charge an exit fee or prepayment penalty. Ask for a written fee sheet and add everything up, because a loan with a lower rate but more fees can cost more over a short term.

Terms

Most hard money and bridge loans run 6 to 36 months. Bank statement loans and many portfolio loans can run 15 to 30 years. Owner financing varies and often has a balloon after three to ten years.

Interest-only payments

On many short-term private loans, the borrower pays only the interest each month and owes the full principal at the end. That keeps monthly payments low during a renovation or while a property is being leased or sold. The trade-off is that the balance does not go down. After 12 months at 12 percent interest-only, a $300,000 loan still has a $300,000 balance and the borrower has paid $36,000 in interest. A simple formula for the monthly payment is the loan amount times the annual rate divided by 12. For $300,000 at 12 percent, that is $3,000 per month.

Balloon notes

A balloon note requires a large lump-sum payment at the end of the term. The payments during the term are too small to pay off the loan, so the remaining balance comes due at once. Balloon structures are common in private lending, including owner financing. They are not inherently bad, but they create a refinancing or sale deadline. If the borrower cannot sell or refinance by that date, the lender can charge default interest, require an extension fee or begin foreclosure.

Why you need a realistic payoff plan

A private loan should never be taken without a documented, realistic plan to pay it off, and ideally two.

• Fix-and-flip: the plan is a sale at a price supported by comparable sales, with a cushion if the price or timeline falls short.
• Rental: the plan is a refinance into long-term financing, tested against the property's rent and the lender's debt service coverage and loan-to-value requirements.

Test a refinance plan at today's rates and at rates a point or two higher, and at a value 10 percent lower than hoped. Budget for the extension fees and extra interest that come with delays, since renovations and sales commonly take longer than planned. If the plan only works when everything goes right, the borrower is relying on luck. Also read the default provisions. Private loans often carry a default rate, sometimes several points above the note rate, plus late fees and the lender's attorney fees.

How do private mortgages compare with traditional mortgages?

The comparison below uses commonly cited ranges and describes typical practice. Actual terms vary by lender, program, state and borrower.

In short, a traditional loan is cheaper and safer over a long hold, while a private loan trades higher cost for speed and flexibility. Total cost on a private loan depends on how quickly the borrower pays it off.

How do you get a private mortgage?

1. Define your financing needs and your exit strategy

Decide exactly what the money is for, how much you need and how long you need it. Write down your exit strategy and put numbers on it. For a purchase and renovation, that means the purchase price, the renovation budget, the projected value after repairs, the holding costs and a realistic timeline with a buffer. Then test the plan: if the property sells for 10 percent less or takes three months longer, can you still pay the loan off? Lenders will ask these questions, and a borrower who has already answered them gets better terms and a faster response.

2. Compare legitimate private lenders

Look at several lenders. Ask for a term sheet showing the rate, points, fees, term, loan-to-value, prepayment terms and default terms, and compare the total cost, not only the rate. Check that the lender is legitimate: confirm its registration with the state, read reviews, ask for references from past borrowers and ask whether the lender funds loans with its own capital or brokers them to others. A broker and a direct lender can both be legitimate, but you should know which one you are dealing with because it affects fees and who makes the decision. Be wary of a lender that asks for large upfront fees before issuing a term sheet, guarantees approval without looking at the property or pressures you to sign quickly. For renovation loans, ask how draws are handled, how quickly they are released and what inspection fees apply.

3. Review and negotiate the agreement

Read the note and the mortgage or deed of trust, not just the term sheet. Pay attention to:

• The interest rate and whether it is fixed
• The balloon amount and due date
• The default rate, late fees and prepayment penalties
• Extension terms and costs
• Cross-collateralization clauses and personal guarantee requirements
• What happens if the lender sells the loan

Many items are negotiable, including points, extension fees, minimum interest periods and the exit fee. Have a real estate attorney review the documents, especially for a first private loan or a loan on a primary residence.

4. Prepare your documents

Typical documents include a government ID, the purchase contract or current ownership information, entity documents if borrowing through an LLC, a scope of work and budget for renovation loans, a schedule of real estate owned or an investing resume, bank statements to show cash and reserves, authorization for a credit check and proof of insurance. For a bank statement loan, add 12 or 24 months of statements and a CPA letter or profit and loss statement if applicable. Organized documents speed up the process and signal a serious borrower.

5. Close through a third party

Use a title company, closing attorney or escrow agent to handle the closing. The third party confirms clear title, collects and disburses funds, records the lien and issues title insurance. Be wary of any arrangement in which the lender wants money wired to a personal account or skips title work. Review the closing statement carefully and confirm the numbers match the term sheet. After closing, calendar the maturity date, any extension deadline and each payment date so the loan does not come due unexpectedly.

6. Manage the loan

Make payments on time, keep the property insured, communicate early with the lender if a project is delayed and start working on the payoff at least several months before maturity. Lenders are generally more flexible with borrowers who raise problems early than with those who go silent. When you are ready, apply with Axelrad Capital and tell us about the deal.

How much is private mortgage insurance on a $300,000 loan?

PMI cost is usually expressed as an annual percentage of the loan amount. Experian, citing Urban Institute data, reports that PMI typically costs between about 0.46 percent and 1.50 percent of the loan amount per year. ConsumerAffairs gives a narrower typical range of 0.5 to 1 percent. On a $300,000 loan, that works out as follows:

So PMI on a $300,000 loan most commonly costs roughly $1,400 to $4,500 per year, or about $115 to $375 per month. The rate depends mainly on two things. The first is credit score: Experian notes that borrowers with scores of 760 or higher may pay as little as 0.46 percent, while borrowers in the 620 to 639 range may pay up to 1.50 percent. The second is loan-to-value, since a smaller down payment means more risk to the insurer and a higher premium.

PMI does not last forever on a conventional loan. A borrower can generally request cancellation once the balance reaches 80 percent of the property's original value, and the lender must generally terminate it automatically at 78 percent if the borrower is current. FHA loans use a separate mortgage insurance premium with different rules. Most private and hard money loans do not use PMI at all, because they manage risk through lower loan-to-value limits. Even at the top of the PMI range, PMI is usually far cheaper than the extra interest on a hard money loan.

How much money do you need to be a private lender?

You do not need millions of dollars, and you can start with none of your own. There is no single minimum, because private lending means several different things.

• Lending your own capital directly. You need the full loan amount in cash plus a reserve. Prudent private lenders lend well below the property's value, commonly 65 to 75 percent, so there is a cushion if the borrower defaults. For example, a lender funding 70 percent of a $200,000 property advances $140,000. Because one loan is a large concentration of risk, many individual lenders spread capital across several smaller loans, and should keep cash available for legal fees, taxes, insurance and carrying costs if a loan goes bad.
• Investing through a fund or platform. Minimums range from a few thousand dollars on some platforms to $50,000 or $100,000 or more for private funds. Many private offerings are limited to accredited investors under SEC rules, which generally means individual income above $200,000 ($300,000 with a spouse or partner) in each of the last two years, or net worth above $1 million excluding the primary residence. Read the offering documents and ask about loan-to-value limits, loss history and how long capital is locked up.
• Buying existing notes. Prices depend on the note's balance, rate, payment history and collateral value, and one note can cost anywhere from a modest amount to hundreds of thousands of dollars.
• Starting with no money of your own through a partner program. Some established lenders let newer private lenders operate under their own brand while using the established lender's capital, products, underwriting framework and servicing. The newer lender brings deals and borrower relationships and earns a share of the fees or spread. The cost of entry is building a pipeline and learning underwriting, not a large check. Ask who holds the lien, who makes the final credit decision, how revenue is split, what state rules apply and what the agreement says about branding and exclusivity.
• Starting with other people's money through syndication. You can raise funds from investors and lend them out. The lender sources and underwrites the loans, investors provide the capital and share in the interest, and the lender earns fees and often a share of profit. Raising money from investors is regulated: offering investors a share of loan returns can be treated as selling a security under federal and state law, which usually means working within an exemption such as Regulation D, using proper offering documents, verifying investors where required and making accurate risk disclosures. Many sponsors work with a securities attorney.

Money is not the only requirement. Private lenders need to underwrite property values, verify title, structure documents properly, handle draws and payments and manage a default. Lending to a consumer on a home can trigger federal and state rules, and some states limit interest rates, which is called usury. Texas applies usury limits to many loans, including business loans, and a 2025 Texas Supreme Court decision held that interest must be measured with the actuarial method based on the declining principal balance. Violations can carry serious penalties. Talk to a real estate attorney in your state before lending directly.

What happens if you miss payments or default on a private mortgage?

What happens depends on the loan documents and state law, but the sequence is similar across most private mortgages.

• Late payments. Most notes include a grace period and a late fee. One late payment may only cost a fee, but repeated lateness can trigger default provisions.
• Default interest. Many documents include a default rate several points above the regular rate. On a $300,000 loan, a few extra points adds thousands of dollars per year.
• Notice and cure. In many states the lender must send a written notice of default and give the borrower a period to cure it by paying what is owed. In Texas, for example, the process commonly starts with a default letter giving a set number of days to cure, followed by a notice of sale if the default is not cured.
• Acceleration. If the default is not cured, the lender can declare the full unpaid balance due immediately.
• Foreclosure. Procedures differ by state. Some states use judicial foreclosure through the courts, which can take many months. Others, including Texas, use non-judicial foreclosure under a deed of trust, which is faster. In Texas, foreclosure sales are generally held on the first Tuesday of the month, and the notice of sale must be filed and posted at least 21 days before the sale. One Texas summary puts the fastest possible timeline at roughly 41 days, although actual timing varies.
• Deficiency. If the property sells at foreclosure for less than the debt, the lender may be able to pursue the borrower for the shortfall, depending on state law. In Texas, the borrower can ask the court to determine the property's fair market value as of the sale date, which can reduce the deficiency. Many private loans also carry a personal guarantee, which makes the borrower personally liable even if the loan was made to an LLC.
• Credit and other consequences. Not every private lender reports to credit bureaus, but a foreclosure creates public records and a judgment can follow the borrower.

How do private lenders handle defaults?

A good private lender wants its borrowers to succeed. Most private lenders build their business on repeat borrowers, and a borrower who pays off on time and comes back for the next deal is worth far more than a foreclosed property. That is why good lenders work with borrowers on extensions and payment problems when there is a credible plan. At the same time, many private loans are asset based, meaning they are underwritten mainly on the value of the property and not on the borrower's income or credit. When the loan is secured by an asset the lender is comfortable owning, the lender has less reason to wait, and private lenders tend to move to foreclose faster after a default than conventional lenders do. Conventional servicers must follow loss mitigation procedures and often work through months of workout options, while a private lender on a business-purpose loan generally has fewer of those obligations. Assume the lender will enforce the note, and communicate early.

For context, ATTOM's mid-year 2026 report counted 227,548 U.S. properties with foreclosure filings in the first half of the year, up 21 percent from a year earlier, roughly one in every 632 housing units. In July 2026 it counted 39,906 properties with filings, up 10 percent from a year earlier, with completed foreclosures up 23 percent. ATTOM describes the overall level as still low by historical standards. Those figures cover all mortgage types, not only private loans.

What should you do before it gets that far?

Act early. If you see trouble coming, such as a renovation delay, a buyer who backs out or a refinance that will not close in time, contact the lender before the payment is missed. Many private lenders prefer a negotiated solution, such as an extension, a modified payment schedule or a short forbearance, to the cost and uncertainty of foreclosure. Expect an extension fee and extra interest, which is usually less than a default. Consider selling the property yourself, since an orderly sale often nets more than a foreclosure sale. Keep records of all communications and get any agreement in writing.

This article is general education, not legal, tax or investment advice. Rules vary by state and by loan type, so talk to a real estate attorney before you sign.