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Private money loans are also known as hard money and come from private lending companies that provide loans to home buyers to purchase a specific property. Typically, home buyers often find these lenders by associating a real estate investment club in their area. These loans are often secured by home investors. But unfortunately not every home-owner will be successful in getting money from a private lender. Here are the major pros and cons of private mortgage loans.
This loan can be a great option for home buyers who haven’t been able to qualify for a traditional mortgage due to less than perfect credit, debt or for self-employed people who can’t always provide proof of a steady income. . A borrower must remember that a person with a bad credit record can get a hard money loan if the project shows profit.
Personal loans are not repaid in 30 years like conventional loans. A significant number of private lenders expect the loan to be repaid in a very short period of time, such as six to twelve months. Lenders are often looking for a very quick return for their money, and they are generally not prepared to loan for as many years as a typical mortgage company. Homes that require additional renovations generally cannot qualify for a conventional mortgage, no matter how much better the borrower’s credit score. In such cases private money can play a very important role. A non-traditional lender may step in and offer to finance the home in salable condition, then flip the home.
A major drawback of personal mortgage loans are the interest rates. Interest rates are much higher with a personal money loan than with a conventional loan. Even so, mortgage rates sometimes more than double, often 12 to 20 percent per year. Basically, mortgage rates are so high because private lenders don’t require perfect credit. Funds from private lenders are usually secured by the asset concerned, so it is usually not very important to the lender whether the borrower has good credit or not.
If you have a home that you think is a candidate for a personal loan, the approval process often takes a couple of weeks, as opposed to 30 to 45 days for a conventional loan. For many borrowers, getting a fast loan is a pretty good compromise for higher interest rates. Generally, private money lenders do not require a long drawn out loan process like traditional mortgages.
If you have a home and want to rehab it, plus you think you can improve it enough to increase its value in the short amount of time you need to pay off the personal loan and replace it with a traditional sale. will allow, then applying for a personal loan is a viable option. As long as you understand the caveats and do your research, it is possible to successfully secure property without a conventional loan.
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