What You Need to Know About Private Money Lenders
If you move in real estate circles the chances are that you have encountered the term hard money. You might even be wondering what it is exactly. Private money is also referred to as hard money and it is used to describe loans that are provided by either private individuals or entities. When it comes to California real estate transactions these are the types of loans that are most often used.
The main difference between the usual types of loans and hard money is that the latter is usually based entirely upon the collateral of the property concerned. Because of this reason, you will discover that very often the loans are written way beneath what the property’s value actually is. From the investor’s point of view, they wish to make sure that there is sufficient equity available should there be a loss, or if the borrower defaults on their payments.
As mentioned above, hard money loans are usually provided by private investors. But they are also provided by private institutions and entities as well.
If you are undecided about whether private money is the solution for you then you will find the following information relevant. When deciding on this as your possible course of action you will need to consider a number of points. You should make sure that you have tried the usual sources first. These would include loans from either national or regional banks, as well as credit unions. In most instances these avenues will provide the borrower with the most competitive pricing and terms.
Sometimes, for various reasons, banks choose not to finance your transaction, in which case you could then look into whether you qualify for private money loans or not. Before you will be considered you will need to show that there is sufficient equity in the transaction, as well as your ability to repay the loan at two or three times the amount in interest and other fees.
This may well cause you to question the logic of utilizing private money. But there are times and occasions when using this type of loan makes sense. Reasons for using private money would include:
When you require a Bridge loan.
You wish to purchase property and require an investor.
You need to rehabilitate an existing property for the purpose of selling.
You find that you are in short escrow and you need to buy without delay.
You need to access the equity in your property for financial purposes.
You have a bridge loan that needs an extension.
You have approached the banks but they have refused you financing because you own many properties.
The bank will not loan you more because you have a unique property.
You have troubled credit but a strong equity position and the ability to repay.
You need temporary cash flow for a business.
When it comes to private money, as with most things in life, there are both advantages and disadvantages. Private money is usually expensive and in most cases it has shorter terms than the majority of bank loans. But, because of the speed and flexibility of these loans they are very convenient and valuable. For many borrowers with California real estate needs it can be a very practical tool that they can make use of.
Hard money is not hard at all! Unlike a bank loan which can take a while to process, hard money loans usually do not take that long. But, because of the attached fees and the terms and conditions some people feel that it is not a worthwhile option to consider. Although not everyone will find it the right solution for their needs, hard money is often the right way to go for many others.
