How to find Private Money Lenders?
Learning More About Private Money Lenders For Real Estate
Private money lenders are usually non-organizational lenders that provide short-term loans for the buying of, or renovation, of a particular investment property. They’re also referred to as “hard money lenders.” Usually, these private lenders provide private money loans to mostly short-term fix-and-flipper and even long-term investors who’re seeking for a quick funding, rehab project, or cash-out refinancing. To gain more understanding about private lending for real estates, and to learn how to acquire these types of loans, we’ve put together this guide to help you get familiar of what you’re about to get yourself into.
How Do Private Money Lenders Work?
Typically, private money lenders provide loans that are insured by a real estate asset. With these loans, you can buy a condo, house, or multifamily building. Anyone can be a private money lender, including a personal friend or even an established private lending firm; therefore, they’re known as “relationship-based” lenders.
When a majority of people are talking about private lenders, however, they are implying hard money lenders. The reason behind is that hard money lenders provide short-term private lending for real estates used to buy and renovate an investment property. These hard money loans are ideal for both long-term buy-and-hold investors as well as short-term fix-and-flip investors. Still, private lenders can be subdivided into three degrees. Every single degree depends on the relationship between the lender and the borrower. These three degrees are listed below:
- Primary circle- Friends and family
- Secondary circle – This includes professional and personal acquaintances and colleagues
- Third-party circle – Hard money lenders and accredited investors
In terms of relationship, hard money lenders are further away from the borrower since they’re categorized as “third-party” private lenders. Hard money lenders, however, are considered the most suitable private lenders since they are the most reliable and offer standardized interest rates, loan terms, fees, and costs.
Who Are Private Money Lenders Ideal for?
Private money lenders are primarily suitable for short-term fix and flippers who desire to compete with the relatively short timeline of a particular all cash buyer. What’s more, private loan lenders are also an excellent option for long-term investors who wish to renovate a rental investment before refinancing into a permanent mortgage. These private money lenders are an excellent option for the following kinds of people:
- Short-term and long-term investors who require quick financing
- Fix-and-flippers who are considering to buy, restore, and sell a property within a year
- Long-term investors with problems of qualifying for a conventional mortgage but consider refinancing after they meet the qualifications
- Buy-and-hold investors who are seeking to purchase and restore a property prior to refinancing with a traditional mortgage
- Long-term investors who require to season the property
Where Can You Get Private Lending For Real Estate?
In general, you can find private money from a variety of sources such as family and friends, personal and businesses acquaintances, hard money lenders, and accredited investors. Since you already know where to find your acquaintances and friends, we’re going to guide you where you could find these private money lenders.
Neal Business Funding is one of the reputable lenders that you can find online. You can easily view our contact details on our website, as well as our application process and the wide variety of loan products we provide. You can rest assured that we will provide you with a personalized solution that suits your business and enables it to prosper.
How Do You Apply For These Private Money Loans?
It’s prudent that you learn a bit about the application process and the factors to consider, now that you already know where to access these private money loans. This is of great significance since you can ask the right questions to your private money lender, like whether they include a prepayment penalty. What’s more, you can effectively plan for the financing fees.
Factors to Consider when Choosing a Private Money Lender
Private lending for real estate can be a more intricate process if you choose the wrong lender. Private money borrowers should consider the following factors when choosing a private lender:
- Real Estate Specialization – Mostly, private lenders deal with a specific field of real estate. Neal Business Funding, for example, only offers loans on non-owner occupied properties. You must ensure that you’re partnering with a hard money lender who has a specialty in the specific property type you’re seeking to finance.
- The Lender’s Experience – Like hard money lenders, private money lenders often cite their years in operation and the number of loans they’ve provided. Typically, you’ll want to work with a private lender who has successfully tackled a few deals, and you can access this information directly on the website of the lender.
- Interest Rates and Costs – The costs and interest rates of a private money loan differ widely and are majorly dependent on the particular lender. It’s always best to find out what exactly are the lowest available fees and interest rates for a private loan.
Keep in mind that some private lenders also have prepayment penalties. The penalty is usually based on a certain percentage of the loan balance once early repayment is made. Other lenders request their borrowers to settle all agreed interest payments as a prepayment penalty. It’s vital to work with a lender that does not have this prepayment penalty, allowing you the borrower to have more repayment options. Irrespective of your choice of a private lender, all of them often have the same loan application processes.
Loan Application Process for Private Lending
Typically, these hard money lenders split the application process into two different stages:
- Pre-qualification – It is a fast approval process that allows a borrower to gain a general understanding of their hard money loan options. The stage takes a short time of around 3 minutes.
- Funding – It is a comparatively longer process than the former whereby private lenders acquire the more in-depth borrower details to finalize a private loan’s rates, costs, and terms.
Various Properties that Private Money Loans Finance
A wide variety of properties can be funded by private money loans, including both residential and commercial properties. Private money loans can specifically finance the following property purchases:
- Condos and apartments
- Single-family houses
- Commercial real estates
- Multi-unit properties
As a matter of fact, hard money loans are usually the most suitable financing options, especially to properties like foreclosure properties, short-sale properties, and non-distressed REO properties. This is mainly because these kinds of properties have a tendency to move quickly, and investors usually have to compete with every cash buyer. The short prequalification time, as well as the time to receive this hard money funding, enable the investors to buy these types of houses.
Benefits of Private Money Loans
These types of loans are beneficial for investors who’re looking to quickly buy and fix up an investment property that’s in damaged condition. Apart from their fast pre-approval process and quick funding time, they have other advantages like:
- Low Credit Qualifications – Hard money lenders and other third-degree private lenders have a minimum credit qualification usually around a personal credit score of 550.
- Renovation Financing Available – Just like hard money lenders, private lenders issue rehab financing.
Private money lenders are basically non-institutional banks that offer private money loans insured by real estate assets. In general, private lenders are also known as hard money lenders. Usually, these private lending loans are applied to fund the purchase and restorations of investment properties.