Private Money Lending are short term loans that you can use for the purchase or renovation of a property. These are more commonly known as hard money lenders. Hard money loans are secured by putting up a piece of property for collateral. The amount that they lend you is determined by what the piece of property that you are offering as collateral is worth. This is what Lender’s tend to look at rather than a credit score
to determine your eligibility for the loan.
What You Should Know About Private Money Lending
So if your credit isn’t perfect, don’t worry about it. The loan is then used to buy a piece of property that you intend to fix and flip for a profit. Private money lenders can be anyone from friends and family to a private lending company. These are considered relationship based lenders. There are three degrees of private money lending. Each of these are based on a relationship between the lender and the borrower.
The Three Degrees of Relationship Based Lenders
Primary Circle: This consists of your friends and family.
Secondary Circle: This would be your colleagues or any personal and professional acquaintances you may have.
Third Party Circle: This is any investors and hard money lenders you may use.
How Good are Hard Money Lenders Versus Other Private Money Lenders?
Hard Money Lenders are considered to be the best in private lending because of how reliable they are and because of their set interest rates, loan terms and fees. Normal hard money loans have a term between 1 to
3 years. Most hard money lenders try to keep their loans around the 1 year mark. You pay the interest on the loan in monthly installments and then there would be one balloon payment at the end of the loan when
you have sold the property. Hard money lenders can have prepayment penalties which will force you to make all of the scheduled monthly payments on the interest, so make sure you watch out for this. The approval
time for a hard money loan is significantly faster than your normal typical mortgage from a bank. You can get pre-qualified for a loan in as quick as 3 days and have your money in hand between 10 to 15 days. A normal mortgage can take a month or longer to close.
As a borrower you can get a hard money loan on pretty much any type of property. This type of private money lending is for single family homes, multi family homes, commercial projects, industrial investments and several types of land investments. One thing you need to watch out for when choosing a lender is that some of them only specialize in a specific property type. So, you need to make sure you check with them first to see if they can help you with the type of loan you are going to need. Most lenders will not give loans on owner-occupied residences due to there being extra rules and regulations that go along with it but once in a while you may find a lender that is willing to go through all the extra paper work for you.
When choosing a lender that is right for you, find someone that you are comfortable with and that is comfortable with your specific requests. The lender will want to meet with you and may even want to go to the location of the property that you are trying to get the loan for. Be prepared to fill out a loan application during this process. This will help the lender see if they can assist you with the type of loan you require. For borrowers that are re-habing a property, the lender will want to value the property as it is, in addition to the ARV. Make sure you have this information available for them.
Always make sure you do all necessary research you need to before going into talk to a lender. It’s always better to be over prepared rather than under prepared. Remember, ask as many questions as you need in order to feel comfortable with the deal. If a lender is telling you something you don’t want to hear, get a second opinion. Don’t ever just settle for the first deal that comes along. Keep in mind private lending companies are relationship based lenders. You need to be able to trust them as much as they need to trust you.
Check out our blog next week for more great private lending advice, and remember if you have any questions or need a hard money loan, then please call us at (832) 924-3856.