Hard Money Loans in California: How Private Real Estate Loans Work

By Matthew Martinez, Founder, CEO & Managing Broker, Diamond Real Estate Group. California DRE #01869679.

A hard money loan is a short-term loan from a private lender or investor pool, secured by a deed of trust on real estate and underwritten mainly on the property rather than on your income. In California these loans are usually arranged by a licensed real estate broker under Department of Real Estate (DRE) rules, or made by a lender licensed by the Department of Financial Protection and Innovation (DFPI) under the California Financing Law. Investors use them for speed: to close on a fixer, an REO or an auction property, or to bridge until permanent financing is in place.

"Hard money" is a market term, not a legal one. California law instead asks who is making or arranging the loan, whether it is secured by real property, and what it is for. Those three answers decide which license applies, which disclosures you get and which interest rules govern. We do not quote rates here; get current terms in writing from more than one lender.

Who can make or arrange a private real estate loan

DRE real estate brokers. Under Business and Professions Code 10131(d), a person who, for compensation, solicits borrowers or lenders for, negotiates, or services loans secured by liens on real property is acting as a real estate broker and needs a DRE license. A broker who originates residential mortgage loans may also need a mortgage loan originator (MLO) endorsement; the DRE’s public license lookup shows a licensee’s status and links to its SAFE Act/MLO information.

DFPI finance lenders and brokers. The California Financing Law (Financial Code 22000 and following) licenses lenders and brokers of consumer and commercial loans, bars deceptive practices, and gives the DFPI administrative, civil and criminal remedies. A separate section, Financial Code 22057, says the CFL does not apply to loans made or arranged by a licensed real estate broker and secured by real property, which is why many real estate lenders work under a DRE license instead.

Before you sign, ask the lender or broker for its license type and number and check it with the DRE or the DFPI.

The Mortgage Loan Disclosure Statement

When a DRE broker negotiates a loan secured by real property, B&P Code 10240 requires the broker to give the borrower a written disclosure statement within three business days after receiving a completed written loan application, or before the borrower becomes obligated on the note, whichever is earlier. The borrower and the broker (or a licensee acting for the broker) both sign it, the borrower gets an exact copy, and the broker keeps a copy for three years. The same rule applies when a broker solicits borrowers as if it were arranging the loan but funds it from its own money.

B&P Code 10241 lists what the statement must show, including:

• Estimated maximum costs (appraisal, escrow, title, recording, credit report) and the broker’s total commission or, if the broker lends, its origination fees and points.
• Existing liens and whether each will stay senior or junior to the new loan.
• Estimated net proceeds to you.
• Principal, interest rate, term, payments and the approximate balloon due at maturity, with a bold warning that an unpaid balloon or missed payments could lead to foreclosure.
• Any broker-controlled funding, any prepayment penalty, and that credit insurance is not required.

The DRE publishes the approved forms on its Mortgage Lending Broker Forms page: RE 882 and RE 883 for traditional loans, and RE 885, a combined disclosure and good faith estimate for nontraditional mortgage products. For certain federally regulated residential loans above the Article 7 thresholds, 10240(c) lets the broker meet the requirement with federal disclosures plus a balloon disclosure instead.

The $30,000 / $20,000 thresholds. B&P Code 10245 says most of Article 7, including its caps on broker commissions and costs, does not apply to loans of $30,000 or more secured by a first deed of trust, or $20,000 or more secured by a junior lien. Sections 10240, 10240.3, 10242.5 and 10242.6 still apply, so the disclosure statement is required on larger loans too. Most investor loans are above these figures, which means fees on them are set by negotiation rather than by Article 7’s caps.

Usury: why broker-arranged loans can exceed the constitutional limit

Article XV, section 1 of the California Constitution sets general limits on interest for loans by non-exempt lenders. It also carves out certain lenders and loans, including loans made or arranged by licensed real estate brokers. Civil Code 1916.1 puts that exemption into the code. The usury limits do not apply to a loan, or to any forbearance, extension or modification of it, that a licensed broker makes or arranges and that is secured in whole or in part by real property.

A broker "arranges" a loan when it is paid, or expects to be paid, for arranging it for someone else, or for handling the purchase, sale, lease or exchange the loan finances, and the exemption also covers loans a broker makes as a principal. A private loan between two unlicensed parties, with no broker involved, does not get this exemption; have a real estate attorney review that note.

Business-purpose loans and federal rules

Most investor hard money loans are business-purpose loans. The federal Truth in Lending Act’s Regulation Z exempts credit extended primarily for a business, commercial or agricultural purpose, and credit to entities such as LLCs (12 CFR 1026.3(a)). So you may not receive the federal Loan Estimate and Closing Disclosure you would see on a home loan, though the state disclosure statement still applies when a DRE broker negotiates the loan. If you plan to live in the property, tell the lender up front.

Common uses for investors

• Fix-and-flip purchases. Many fixers can’t pass a conventional appraisal or condition review, so a private loan, often with a rehab holdback released in draws, funds the purchase and work. See our renovation loans guide for agency-backed options that may fit owner-occupants.
• Bank-owned and auction properties. Fast, property-based approval can help on an REO with a short closing window. Our REO financing guide compares the options, and foreclosure auction vs. REO explains why auction purchases usually need cash or cash-equivalent funds.
• Bridge to long-term financing. An investor may use private money to acquire and stabilize a rental, then refinance into a DSCR loan or apartment building loan once it qualifies. Homeowners buying before selling should read our bridge loans guide.
• Second liens. A private second can sit behind a bank first or seller financing; see our seller financing guide.

Risks to weigh before you sign

• The balloon. Most private loans are short and end with a large final payment. If you can’t sell or refinance by then, you have to negotiate an extension, usually for a fee, or you risk default. For loans on one-to-four-unit homes where the borrower lives in one of the units, Civil Code 2924i requires the holder to mail a balloon notice 90 to 150 days before the final payment is due. Pure investment loans may not get that notice, so calendar the date yourself.
• Exit risk. A refinance depends on the appraisal, your credit and the lending market when the loan matures, none of which you control at closing. Build the plan around a conservative after-repair value. Our rental property analysis guide walks through the numbers.
• Total cost, not just rate. Points, origination, draw and inspection fees, extension fees, default interest and prepayment terms can matter as much as the note rate. The disclosure statement lists the broker’s compensation and estimated costs; compare it line by line between offers.
• Draw mechanics. With a rehab holdback, ask who inspects and how fast funds are released.
• Guaranties and cross-collateral. Read any personal guaranty or lien on a second property before you pledge it.
• Foreclosure. A deed of trust can be foreclosed without a court case when you default. Losing the property and your equity is the downside the 10241 notice warns about.

Questions people ask

Do I need good credit for a hard money loan?

Private lenders focus mainly on the property and your equity, but most still review credit, experience and the exit plan. Requirements vary by lender.

Is a hard money lender required to be licensed in California?

Someone who arranges or negotiates real-estate-secured loans for others for compensation needs a DRE broker license under B&P Code 10131(d). Lenders who make loans as a business generally hold a DRE broker license or a DFPI California Financing Law license. Check either license before you sign.

What is the Mortgage Loan Disclosure Statement?

It is the state-required disclosure a DRE broker gives you, within three business days of a completed application or before you’re obligated, whichever is earlier. It lists costs, broker compensation, liens, net proceeds, loan terms and the balloon payment. You and the broker both sign it.

Can a hard money loan charge more than California’s usury limit?

A loan made or arranged by a licensed real estate broker and secured by real property is exempt from the constitutional usury limits under Civil Code 1916.1. A private loan between unlicensed parties with no broker involved may not be exempt. Have an attorney review it.

Will I get a Loan Estimate and Closing Disclosure?

Not necessarily. Business-purpose and entity loans are exempt from Regulation Z. You should still receive the Mortgage Loan Disclosure Statement when a DRE broker negotiates the loan, plus escrow’s settlement statement.

Can I use a hard money loan to buy my own home?

Some private lenders make owner-occupied loans, but they come with more federal and state consumer rules, so fewer lenders offer them. For a primary residence, compare conventional, FHA or renovation loans first.

Sources & notes

1. Business and Professions Code 10131(d): broker activity includes soliciting, negotiating and servicing real-estate-secured loans.
2. B&P Code 10240, 10241 and 10245: disclosure statement timing, contents and Article 7 thresholds (10245 last amended effective January 1, 2008).
3. DRE Mortgage Lending Broker Forms: RE 882, RE 883, RE 885 and the RE 851 lender/purchaser series.
4. DRE Public License Lookup.
5. DFPI, California Financing Law and Financial Code 22057 (real estate broker loans secured by real property).
6. Civil Code 1916.1: usury exemption for broker-made or broker-arranged real-estate-secured loans, implementing California Constitution Article XV, section 1.
7. Civil Code 2924i: balloon payment notice for owner-occupied one-to-four-unit loans.
8. 12 CFR 1026.3(a): Regulation Z exemption for business-purpose and entity credit.

Statute text was reviewed through public mirrors of the official code; confirm the current wording on leginfo.legislature.ca.gov. We do not publish interest rates or fee ranges; they change with the market and vary by lender. General information, not legal, tax or lending advice. Updated November 2026. Primary sources are linked in this guide.

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