Browse Private Real Estate Lenders

For the majority of homebuyers, getting a loan is a necessary step in the journey to home ownership.

A mortgage with a traditional lender like a bank is the most common loan product to choose from. However, if you are unlikely to be approved for a mortgage by one of these traditional institutions, you will need to look to private lenders.

This can be a daunting prospect for the uninitiated, so let’s look at the main points to consider when taking out private loans to buy real estate.

Finding the right lender is important

Private loans, also known as hard money loans, are different from mortgage loans in that they do not depend on the borrower’s financial situation to determine whether or not they are approved.

Instead, they rely on the property itself as collateral, meaning even people with bad credit often qualify.

Of course, you should always approach the process of finding a private lender with the same rigor as when looking for a standard mortgage.

Luckily, you can find mortgage lenders online and compare the packages they offer in minutes, meaning you never have to strike a deal without knowing all the facts.

Considering interest rates is key

The benefit of private money lending being more accessible from an applicant’s perspective is certainly appealing, but there are a few caveats that apply specifically to this market.

Higher interest rates are the most obvious sticking point, because while a mortgage might have annual fees between 2 and 5%, hard money loans can fall between 10 and 18%, which is obviously a big difference.

This is due to the amount of risk the lender is taking. If you have a spotty financial history and aren’t equipped to get a standard mortgage, private lenders need to factor that into their fees.

Again, comparing private lenders will allow you to identify more affordable offers. It’s just a matter of reading the fine print before committing.

Exploring repayment schedules is essential

The other aspect of private money loans, particularly in the context of the purchase of real estate, is that their repayment schedules are much shorter than conventional real estate loans.

While a mortgage can allow you to repay the amount owed over a period of 10 to 30 years, a hard money loan can be arranged within 12 to 36 months.

Again, this is partly due to the risk that lenders take, but the main motivating factor is to attract people who want to flip properties and resell them.

Buying a dilapidated house, renovating it and reselling it for a profit in a few months is perfect for people who are borrowing privately, because a mortgage just wouldn’t move fast enough to keep up with the pace of this market.

That’s not to say that private lenders are only helpful if you’re a home-flipper or real estate investor.

In some cases, people get hard money loans to buy their dream property, then get a mortgage afterwards to pay off the loan and move to a more affordable plan and repayment period. If time is of the essence, this may be your only option.

Understanding the additional expenses makes sense

We’ve talked about the pros and cons of borrowing from private lenders to buy real estate. So the only thing to recommend is to carefully review any loan agreement you receive before signing it.

Additional fees and charges could be levied by lenders, and since they are not regulated in the same way as banks, they are freer to run their business as they see fit.

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About Jermaine Chase

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