Do the technical financing terms like LTV, Debt Ratios, Points, and Balloon Payments make you scratch your head and send you running off to a Google Search?
Does the thought of getting a real estate loan through a private investor make you nervous?
Have you looked into traditional bank mortgages and found that you just couldn’t qualify for a Conventional loan due to your unique situation?
If so, welcome to this post! We’re glad to have you here at this beginner-level introduction to private money lending in California.
For the private money newbies, this post will give you a basic understanding of what private money loans are. In the following posts, you will learn more of the technical aspects of how they work.
To help you get a clear idea of what a private money loan is, let’s first tackle some of the common misunderstandings by reviewing what a private money loan is not.
Private Money Loans are NOT:
- The right type of loan for everyone.
- A long-term, permanent financing solution.
- Loans with the lowest interest rates.
- Loans with the lowest fees.
- Only for people with bad credit.
- Only used as a last-resort.
So, what exactly are private money loans? Here is my short answer in Plain English.
The 15-Second Explanation
In the simplest terms, a Private Money Loan is an asset-based real estate loan where the loan is typically funded by an individual person as opposed to your traditional bank or institutional mortgage lender.
For example, the actual lender would be a private investor such as Mary Smith instead of your typical ABC Community Bank or XYZ Mortgage Corporation.
Private Money Loans are Based on Equity vs. Credit
The lending decisions on a private money loan are based primarily on the equity and property itself, whereas institutional lenders mainly base their lending decisions on the personal credit history and income of the borrower.
This difference in the approach to underwriting (reviewing) and approving the loans creates an opportunity for people who are not able to get traditional financing through their lending institutions.
Private Money Loans Offer Speed and Flexibility
Private money loans serve as a short-term funding solution when you need the benefit of speed and/or flexibility to meet your lending needs and objectives.
An example would be when you are not able to qualify for a conventional loan due to your personal credit history or income issues. Or perhaps you’re looking to purchase or refinance a property that would not fit within the banks’ requirements due to a number of reasons including property type, age of the property, location, and condition.
Private Money Loans are for Residential and Commercial Properties
Private money loans can be used for purchasing and refinancing both residential and commercial real estate properties. This is one of the reasons that private money is commonly used by real estate investors who purchase, own, and sell properties. The flexible lending guidelines allow the investors to make deals and close their loans quicker than going through a bank.
Private Money Loans are Not Just for Real Estate Investors
As a common homeowner, you may also benefit from a private money loan when you find yourself in a situation where you need to quickly borrow money against the equity in your home.
Private Money Loans Have Higher Rates and Fees than a Bank Loan
Private money lenders take a higher risk than the banks. They are able to provide funding for real estate purchases and refinances when the institutional lenders will not. Therefore, you can expect the interest rates, fees, and terms to be higher as well.
It’s worth noting that there are no set fees and interest rates among private money lenders, although there are laws in place to protect you from being over-charged on residential loan transactions. The regulations for real estate and lending can vary from state to state, so you should choose a lender whom is actively licensed to conduct business in the state where the property is located.
At ARC Capital, we are only licensed to lend in the state of California. In most cases, we are also able to fund your loan with lower fees than you would be charged by other private money lenders.
Want to learn more? The links below will help you save you time, money, and stress…
Do you have a unique situation you’d like us to review?
Submit your loan scenario here >> www.PrivateMoneyApproval.com
Do you have other general questions?
(There’s absolutely no obligation and no commitment.)