Private money loans have been around for a long time, and given the present economy, it is a probability that they will be around many years to come. If you are having difficulty securing a loan based on credit history, unique or unusual property, or for any other reason, a private money loan may be your answer.
Private money is exactly that, private money from individual investors or a group of individual investors together. With this type of loan, you deal directly with the investor, almost on a one-on-one basis. Since you are dealing with a private party there is room to be creative, and think outside of the box. That is, just as long as the investor can see the potential for a high return on their money. This is not to say that they will lend to anyone, but the value of the real estate securing the loan is their first concern. Unlike institutional lenders, credit is not the only factor. If you have the right numbers, and there is enough equity in the deal, many credit concerns can be overlooked no matter how bad they are.
These lenders have the ability to finance most types of property. This is a great option for someone who has a difficult or unusual property that they are having a difficult time finding traditional financing. These loans are not limited to business and residential, but are available to finance land, new-construction, and many other unique situations. With private money lenders, it never hurts to present an offer no matter how strange it may seem, the first investor may say no, but the next one may just say yes!
If you are considering a private lender, there are some things you should know. Private lenders really like to see at least a double-digit return on their money. This means that their interest rates can be more than double that of traditional lenders. Today, it is not uncommon to find a lender who will charge 14% or more. The terms for these loans are also another factor to consider. They generally finance a maximum of 56 to 60 percent of the value of the property, and for 1 to 5 years. On occasion, you might find one that will agree to finance your loan for 10 years or more, but this is not common practice.
Qualifying for a private money loan is not as complicated as a traditional lender, and the documents required to obtain approval can vary depending on the situation. A private lender will need to have all the details of the transaction in order to make a decision, and because they receive so many offers, proper preparation of a potential loan package should be done by a qualified or trained personal who deals in private money lending. This will ensure you submit a complete and organized offer. There are a number of reputable companies that have access to hundreds of investors that can prepare your offer and present it in an organized manner. Be sure to do your research and find a company that will answer all of your questions, and not rush you into anything. You will want to be sure of the terms of the transaction, down payments, closing costs, escrow fees, interest rate, balloon payments, amortized or interest only, and any other costs associated with the loan, including the fee that the loan originator charges.
The need for private money loans is on the rise and as more and more people lose their homes and businesses, they are also running out of traditional credit options. Private money may be their only resource, when it is time to rebuild, and it is nice to know that there is another option.