Mistakes to Avoid With Private Money Loans

ARC Capital Hard Money Loans

5 Common Mistakes to Avoid With Private Money Loans

Can’t get a loan with a traditional bank?

Don’t worry, you’re not alone.

Since 2007, the average number of private money loans with lenders has risen by 50%.

There are many reasons why your loan request might be rejected by a bank. Whether it is poor credit history, property risks, or employment issues (among other things), a private money loan could be the solution.

Take a deep breath. When done right, a private money loan could be one of the best decisions you make.

Today we’re going to tell you 5 common mistakes you need to avoid to ensure your private money loan runs smoothly!

1. Not getting pre-approved before signing the contract

You should never commit to a large financial investment without first getting pre-approved for a loan. We repeat, never!

This includes purchasing a property, but it might surprise you how many people sign a contract before their loan is pre-approved.

Before entering into an agreement like this, you need to consult and get pre-qualified from a trusted lender like ARC Capital. You can even get a proof of funds letter to really seal the deal and let sellers know you’re serious.

Failing to do this could cause a lot of heartache for you.

Imagine making an offer on a property and having it accepted, only to then have your loan request rejected.

That’s one headache you certainly want to avoid.  Getting pre-approved is simple and there is no obligation to move forward with the loan.

2. Not knowing exactly how much you need to borrow

Here’s the thing with private loans. Like bank loans, you pay back the loan making a monthly payment.  However with hard money loans your monthly payment is interest only.  The full loan amount is due at the end of the loan term.

The more you borrow, the higher your payment will be based on the interest rate.

If you borrow more than you actually need (or can afford to), you may struggle with these monthly payments.

What happens if you default on your loan or can’t afford to pay-off your loan? You guessed it. Your home can be foreclosed on since the entire property was used as collateral.

Alternatively, it’s also important not to under-borrow.  ARC Capital’s experienced loan officers can help you figure out this figure.

Whether you’re renovating your family’s home or fixing an old property to flip, there are often unexpected renovating costs and delays in the housing game.

These unforeseen expenses could exceed the amount of your loan, leaving you too cash-strapped to make the payments. Or the project could go on for way longer than you first thought it would.

Always make sure your contractor has given you an estimation of how much your project will cost before you secure a private loan.

3. Letting the interest rate of private money loans be a turn-off

The interest rates for private money loans are often around the 8% – 12% range.

These rates are higher than bank loans, but there are many good reasons for this.

Firstly, private lenders take more risks than banks in entering these agreements. It is the investors own money after all!

Secondly, private and hard money loans give you quick access to the cash you need. Banks, on the other hand, require a lengthy and strict approval process.

Most private money loans are interest-only payments, so monthly payments are more manageable.

The goal of a private or hard money loan is to give borrowers a fast but short-term solution to help them complete their project.

Once the borrower is more financially secure, they are able to move on to permanent solutions offering lower interest rates. It’s a win-win!

4. Not going with a reputable lender who has your best interests at heart

Before choosing a lender for your private money loan, you need to ask a few questions:

  • How long have they been in business for?
  • Do they have experience in your project’s sector?
  • What do they require for the loan application?
  • How long will the approval process take?
  • Are their payment plans flexible?
  • Do they have the financial capability to support me with this loan?

Most of these questions can be answered with a phone call.  ARC Capital’s partners Todd Wilson and Scott Oechslin are available to speak with you regarding any questions you may have.

You can also take a look at their website to see if they are transparent and if they answer the vital questions upfront.

Remember, entering into a private loan contract is like a business partnership. You both need to be committed to your end of the agreement.

Check out our main website at ARCequity.com!

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