The Difference Between Gap Funding, PML, and HML
The Difference Between Gap Funding, PML, and HML
In real estate, money moves deals. But not all money is created equal. For new and seasoned investors alike, understanding the difference between Gap Funding, Private Money Lending (PML), and Hard Money Lending (HML) is the difference between closing deals or losing them.
At The Flip Whisperer®, we specialize in structuring the right type of capital for each deal. Let’s break down how these three sources work, when to use them, and how they fit together.
What Is Gap Funding?
Definition: Gap funding fills the “gap” between your primary loan and the total cost of your project.
When It’s Used:
Covering rehab/renovation costs not included in the main loan.
Handling holding costs like insurance, taxes, and utilities.
Filling shortfalls when primary funding doesn’t cover everything.
Example:
A borrower secures a $150K hard money loan to purchase a property. The rehab budget is $40K, but the HML only funds $20K. A gap lender steps in to cover the remaining $20K, ensuring the project stays on track.
👉 Gap funding is usually smaller, shorter-term, and higher-risk — but essential in making deals work.
What Is Private Money Lending (PML)?
Definition: Private money comes from individual investors (friends, family, or networked lenders) who fund deals in exchange for returns.
Characteristics:
Flexible terms, often negotiated one-on-one.
Relationship-driven.
Secured by notes, mortgages, or deeds of trust.
Rates vary (often 8–12% with points).
When It’s Used:
Borrowers who don’t qualify for banks.
Quick funding needs.
Investors building a portfolio of trusted capital partners.
Example:
An investor wants to buy a rental property but doesn’t have time for bank approval. A private lender provides $120K at 10% interest, secured by the property. The deal closes in 10 days instead of 45.
👉 Private money is about trust. Strong communication and reliable execution keep these doors open.
What Is Hard Money Lending (HML)?
Definition: Hard money lenders are professional lending companies that provide short-term, asset-based loans for real estate investors.
Characteristics:
Faster than banks (closings in 5–14 days).
Based primarily on the property’s asset value and ARV, not borrower credit.
Short-term (usually 6–18 months).
Higher interest rates (10–15%) plus origination points.
When It’s Used:
Fix-and-flip projects.
BRRRR deals before refinancing into long-term loans.
Situations requiring fast, no-hassle funding.
Example:
An investor finds a distressed home listed at $100K with an ARV of $200K. A hard money lender funds 70% of ARV ($140K). The investor uses the loan to purchase and rehab the property, then sells it for $200K, paying off the HML at closing.
👉 Hard money is fast, asset-based, and ideal for flips — but must be paired with a solid exit plan.
How They Work Together
Many investors use a blend of HML, PML, and Gap Funding to complete a deal:
Hard Money Lender → Covers the purchase price + part of rehab.
Gap Lender → Covers remaining rehab/holding costs.
Private Lender → Adds flexible capital or partners in equity.
This stacking of capital ensures projects stay funded from acquisition to completion.
The Flip Whisperer® Perspective
Our role is connecting the dots: borrowers who need capital, private lenders who want returns, and hard money lenders who move fast. By understanding how these three tools interact, we create win-win solutions that close deals — even when traditional banks won’t.
Conclusion & Call to Action
Every deal has gaps. Every investor needs speed. Every lender wants security. By mastering the differences between Gap Funding, PML, and HML, you can structure deals that actually close.
✨ At The Flip Whisperer®, we don’t just fund deals — we structure them so everyone wins.
📩 Ready to connect with the right funding for your next flip? [Submit a Deal] | [Submit Capital]
