Private Lenders Are Another Borrowing Option

If you are thinking about borrowing money for a real estate investment, private funds may be an alternative you want to consider. Depending on your current personal situation, you may find that private money is one source that could work for you.

Since lending standards have become more strict, more people are working with private lenders to fund their real estate needs.There are several reasons why people are turning to this type of money resource.

Before sub-prime loans were common, private lenders were the resource for many people that had less than great credit; or for other reasons, were unable to qualify for traditional loans. Now that sub-prime loans are virtually nonexistent, private money is coming back into fashion as a viable alternative for many people.

Even if you have good credit, in a tight lending market like we have now, you may still have trouble with a large loan, a bridge loan for a construction project, or other short term loans. I have clients right now that occasionally consider private lenders for distressed property that they buy, repair and rent or resell.

For some people, a private lender is a last resort. When a loan fails to get underwriting approval at the last minute before a scheduled closing, a private lender can step in. Be aware though that unlike an ‘agency’ loan, you probably won’t get private money with only a 3% to 5% down payment. These lenders are looking for something in the neighborhood of 25% to 35% down. You’ll also likely pay much higher interest; sometimes double what a more conventional resource might charge you.

In cases where other sources of money are not available, private money can possibly help. Usually the best use of private money is for renovation projects and similar needs where the money is used for a short term.

If you choose this source of lending, be careful to understand the terms very well. You need to know exactly how the loan works and what you’re getting into. Private lenders are a great resource for the right project and the right people. If you think you’re one of those people, just know what you’re getting into before you sign. If you can find a better value, you should probably take it.

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