Five Common Mistakes to Avoid with Private Money Loans
Private money lending has become more popular as conventional banks tighten their procedures for approving residential and commercial loans. A conventional loan might be turned down for any number of reasons including credit problems, self-employment, previous foreclosures, bankruptcies, or other issues. Private money investors may be more flexible for approving your loan, but there are still some things to avoid when looking for private or hard money.
Not Getting Pre-Approved
Never commit to a large financial burden without first getting pre-approved. You don’t want to sign paperwork for a property without knowing you have the financial means to pay for it. You can often request a proof of funds or commitment letter that verifies the funds are available to you. This will make the property transaction go much more smoothly.
Not Knowing How Much Money You Need
Do your due diligence and know how much money you need for your property before you start looking for financing. Private money payments are typically interest-only with a balloon payment at the end of the term. Asking for too little money could result in you losing the deal. Asking for too much will make the monthly payments and balloon payment higher than needed, adding to your financial risk.
Being Turned Off by the Interest Rate of Private Money Loans
If you are looking for private money, you need to be aware and accepting of the higher interest rates you will find. Private money investors are accepting a higher risk by ignoring credit ratings or previous financial issues of the borrowers. It is their personal money being used for the loan, and they are accepting interest-only payments until the end of the agreed loan period. All of these factors result in higher interest rates.
Not Using a Reputable Private Investor
You don’t go to a bank you never heard of before for a loan, and you don’t want to use an unknown private investor for the same reason. Shop Commercial Mortgage has a group of vetted private investors with years of experience in private or hard money loans. Protect yourself by using Shop Commercial Mortgage for your private money financing.
Not Being Knowledgeable About All the Costs of Your Loan
As you prepare to accept your private money loan, read all the fine print and make sure you are fully aware of all costs, penalties for late payments or other issues, and any additional fees. Paying fees or penalties that you haven’t been aware of will add to the cost of your property, so take time to fully research all terms and conditions.
Shop Commercial Mortgage services Florida and nationwide with our network of private investors. We will be happy to answer all your questions about private money financing, so contact us today!