Private Money Lenders: The Ultimate Guide
Private money lenders are not commercial banks. They are very good at issuing loans for short-term uses by commercial customers, and residential borrowers in some cases. Some of the opportunities for private money include:
- purchase of an investment property
- renovation of a new or existing investment property
- fix-and-flip opportunities
- quick funding for a business expansion
- cash-out refinancing
Private money loans are usually secured by the equity in real estate or another asset. Although a private lender can be a family member or acquaintance, our discussion here will involve using a private or hard money lender like Shop Commercial Mortgage.
Private money loans have different terms than a conventional bank. Most private money investors limit the loan-to-value ratio to an amount they are comfortable for lending. Interest rates will be higher than a conventional lender, because the private investor is accepting a higher risk by ignoring credit ratings or other financial measurements. They are accepting the loan based on the equity in an existing property. Private investors will also typically require a larger down payment than what might be required from a conventional bank. Investors want to know the borrower is sharing in the responsibility for the investment. There may be points charged for a private loan, and borrowers should be aware of any loan processing fees.
The advantage of obtaining a private money loan is the speed of loan processing. Qualification can occur quickly, there is typically less paperwork required for private financing, and loan completion can occur within several business days versus weeks or months for conventional loans.
Be prepared to be asked about renovation plans if you are using the money to overhaul the property being used to secure the loan. Also keep in mind that private money investors normally want their loans to be for perhaps 10 years or less, and are not intended in most cases to be long-term loans. Contact Shop Commercial Mortgage today for full information on our private money loan programs.