What You Need to Know About Private Money Lenders

If you move in real estate circles the chances are that you have encountered the term hard money. You might even be wondering what it is exactly. Private money is also referred to as hard money and it is used to describe loans that are provided by either private individuals or entities. When it comes to California real estate transactions these are the types of loans that are most often used.

The primary difference between private money and conventional loans is that private money loans are mostly based on the property’s collateral. This is why you typically find these loans written far under the property’s value. The thought process of the investor is that the equity available should be sufficient in case there is a loss or default by the borrower.

Whereas usually private investors provide the hard money loans, they can also be provided by private institutions and entities.

You may have wondered if private money is the right solution for you. There are many variables that make up this answer. First, you should always try conventional sources of money first. These would include national banks, regional banks and credit unions. These channels will offer the most competitive pricing and terms to your average borrower.

If a normal bank will not finance your transaction then you may be eligible for private money options. In order to take advantage of these loans there must be equity in the transaction considered, an ability to repay and the willingness to pay 2 to 3 times the amount in interest rate and fees.

At this point you may be wondering why anyone would want utilize hard money. The reality is that there is a time and place where this type of loan makes sense. Some of the reasons could include:

When you require a Bridge loan.

You wish to purchase property and require an investor.

You need to rehab a property to sell.

If you are in short escrow and you need to purchase without delay.

For financial reasons you find that you need to access the equity in your property.

You need to extend your bridge loan.

You have many properties and a bank will not finance any more.

The bank will not loan you more because you have a unique property.

You are in a strong equity position and you are able to repay the loan but due to a negative credit record the banks have turned you down.

You need temporary cash flow for a business.

Like most things in life, there are advantages and disadvantages of private money. Hard money is typically expensive and has shorter terms than most bank loans. However, the speed and flexibility in which these loans can be done is extremely valuable. It can be a useful tool for some borrowers’ California real estate loan needs.

Hard money is not hard at all! You will find that it is much quicker to obtain a loan that way than through the conventional means. The problems come in when one considers the fees and terms and conditions that are usually attached. Whereas it is not the best choice for some, for others it can be the answer that they have been looking for.

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