What You Need to Know About Private Money Lenders
May 16, 2009
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.
Private money differs from conventional loans in that private money, or hard money, is based solely on the property’s collateral. That is why it is commonly found that these loans are written way beneath the actual value of the property concerned. Basically, the investor wants to ascertain that the available equity would be enough to cover any loss or default by the borrower.
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.
However, you may find that a normal bank does not wish to finance your transaction in which case you can then look into whether or not you qualify for a private money loan. To be able to take advantage of this option you will need equity in the transaction as well as the ability to repay the loan at two or three times the amount you borrowed in interest and other fees.
This could well result in you wondering why anyone would opt for this course of action. However, it is important to bear in mind that often these are the types of loans that make the most sense. Some of those instances are listed below:
You require a Bridge loan.
If you require cash in order to buy property.
You have to renovate a property to sell.
If you are in short escrow and you need to purchase without delay.
For financial reasons you need to access the equity in your property.
You need to extend your bridge loan.
You have approached the banks but they have refused you financing because you own many properties.
You have approached the banks but they have refused you finance because you have a unique property.
You have troubled credit but a strong equity position and the ability to repay.
You require a temporary cash flow for your business.
As with most things in life you will find that choosing private money comes with its own advantages and disadvantages. Private money is invariable expensive and the terms are shorter than those of most banking institutions. But if you require both speed and flexibility then private money is definitely an option that you should consider. For many borrowers it is a useful means of obtaining finance when you are involved with California real estate.
Hard money is not hard at all! You will find that it is much quicker to obtain a loan that way than through the conventional means. The problems come in when one considers the fees and terms and conditions that are usually attached. Whereas it is not the best choice for some, for others it can be the answer that they have been looking for.