Are You Getting Told “No Thanks” by the Banks?
Introduction to Private Financing
In the ever-evolving world of mortgage finance, lending rules constantly change for banks, credit unions, and other prime mortgage lenders, and life circumstances often change for borrowers. In recent years, many banks have slowed down their lending or tightened their underwriting rules such that sometimes borrowers discover that traditional real estate financing is not interested in them or their
project.
In these circumstances, a borrower may have success borrowing money from a private individual or organization offering private financing, where lending
rules and guidelines are lot more flexible.
Private Landing
Lending
What is Private Lending?
Private or ‘Hard Money’ Lending is simply a short-term loan secured by real estate. The terms are usually about 6 to 24 months, but can be longer. The loan payments
could be interest-only or amortizing. As private lending is more expensive than traditional bank lending, a borrower typically wants to get in and out as fast as
possible. At the end of the term, the loan needs to be re-paid, so knowing how you will make this happen (your “exit strategy”) needs to be very clear for both you and the lender (more on this later).
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Hard money loans are not appropriate for all deals. When purchasing or
refinancing a primary residence with good credit, income history, and where there are no foreclosure or property condition issues, conventional financing through a bank is the best way to go. If, however, banks are not an option or the loan is needed in a short period of time, private lending may be the solution to help you
bridge the gap. It is useful to think of a hard money loan as a means-to-an-end,
perhaps a much bigger profit opportunity or to allow you to get back on your feet. embarrassing hidden.
Typical lending situations:
Property Types: a borrower can get private lending on almost any type of property, including:
Some private lenders may specialize in one specific property type such as
residential and not be able to do land loans, simply because they have no
experience in this area. Most private lenders have a specific niche of loan they are most comfortable with. An experienced mortgage broker can help you quickly
locate the correct lenders upfront, let you know type of loans they are willing and able to do, and under what terms.
How to Qualify for a Private Mortgage
Borrowers can access private lenders directly (Internet search) or through
mortgage brokers. A mortgage broker experienced in private lending and with multiple lending sources will often know the better lenders and lending programs in the marketplace and if they can obtain for you a lower rate and better terms than
you can on your own, you will instantly save money.
To qualify, lenders are primarily concerned with the amount of equity you
have invested in the property. The more equity you have, the better terms you will be offered. Credit and employment are not so critical provided you can
prove you have the resources to make the required payments and that you can present a plan on how you will ultimately repay the loan by the end of the term. This is called the “exit strategy,” which I referred to earlier.
Exit strategy examples (to repay the private lender)
I always say to my clients, we need to be able to convince the lender how you will
be able to make your loan payments and that you will be able to repay the loan –
“on a wing and a prayer” just won’t cut it. The better you can articulate and
document the specific steps you will take and timing to get there, the better your
terms will be. Lenders will also need to see a current appraisal of the property (as-
if-sold-today value) and their maximum loan will be based on that value.
Contact us
We'll be happy to hear you out and spell out some options.