5 Myths of Private Money Loans – Part 2

Myth #2:

Private Money Loans are Only for People with Bad Credit

Truth:

People with perfect credit also benefit from private money loans.

Sure, private money loans are a great option when you have no credit or bad credit, but they are not just used by people with poor credit.

Allow me to explain.

There are many times when a private money loan may be a good solution based on your current situation and what you are trying to accomplish.

For example, real estate investors establish relationships with private money lenders because they often need to tie up a property and close the deal as quickly as possible. They simply don’t have the time to wait for the traditional mortgage loan processing. (It could be 1-2 months)

Traditional lending is based on 3 key components of credit, capacity, and collateral. With Conventional loans, you would need to have all three things going for you.  This means that you would need good credit and good income and enough down payment or equity in the property.

What happens when you fall short in one of these key areas?

Suppose you have excellent credit and plenty of equity in your home *but* you are not able to document all of your income. This is a case when you might need a private money loan as a back-up solution even though your personal credit history is not an issue.

Another example would be when you have a strong credit history, equity in your property, and plenty of income. However, the property (collateral) itself may be the reason you are turned down for a conventional loan.

This could be due to a number of reasons. Some of the common property issues could be the property type, age, house size, lot size, condition, location, or any improvements that were made to the property without the required building permits.

There are many times when well-qualified borrowers simply come into issues trying to get conventional financing due to the property itself. This is when private money becomes a Plan-B option.

Click Here for Myth #3: Private Money Loans Cost Too Much

 

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