Everything About Private Money Loans


Everything About Private Money Loans

Everything About Private Money Loans
What is​ private money used for?
Private money is​ generally used as​ a​ bridge: a​ way to​ get from point a​ to​ point B .​
It is​ generally a​ short to​ medium term solution (1-6 years),​ and there is​
nearly always an​ exit strategy going in​ .​
It is​ used for all types of​ real estate secured financing: commercial retail,​ restaurants,​ hotels/motels,​ marinas,​
elder care facilities,​ industrial,​ agricultural,​ raw land,​ land development,​ construction,​ rehab,​ multi-family,​ single family homes,​ manufactured homes,​ and
floating homes .​
For a​ list of​ our loan programs .​
Some providers of​ these loans are www.rocklandcommercial.com,​ www.californiaprivatemoneyloan.com,​ and
www.interestratepolice.com
What are the​ interest rates?
Private money rates generally range from 10 to​ 15% .​
The rate is​ determined by looking at​ a​ combination of​ factors: (a) LTV ratio,​ (b) strength of​ borrower,​
(c) condition/desirability of​ property,​ (d) actual cash-in or​ real equity contributed by borrower .​
Typically our rates fall in​ the​ 12-13% range .​
a​ list of​
our loan guidelines may be found here.
What fees are involved?
Private lenders charge a​ loan fee generally equal to​ 5% of​ the​ gross amount of​ the​ loan .​
We also charge a​ doc prep fee ($500 or​ more,​ depending on​ the​ size
of the​ loan),​ a​ property inspection fee ($500 or​ more,​ depending on​ the​ location of​ the​ property),​ and a​ collection account setup fee which is​ based on​ the​
size of​ the​ loan .​
There are no hidden junk fees .​

Can the​ fees be paid from the​ proceeds of​ the​ loan?
Yes,​ if​ there is​ enough equity in​ the​ project .​
This is​ frequently the​ case.
Is there a​ pre-payment penalty?
Generally there is​ a​ 3-6 month minimum interest clause for our loans .​
With a​ 3 month minimum interest clause,​ for instance,​ it​ means that if​ a​ borrower
repays a​ loan in​ 3 months or​ more,​ there is​ no penalty .​
If the​ borrower repays the​ loan,​ for example in​ 2 months,​ then the​ borrower will have to​ pay an​ extra
month's interest out of​ escrow at​ closing.
Why would anyone pay those kinds of​ rates and fees for a​ loan?
There are many reasons whey a​ borrower would choose to​ use private money over a​ cheaper institutional option .​
For example,​ professional real estate investors
like to​ use private money when buying because they are able to​ make offers which are not constrained by long timelines and numerous rigid conditions .​
Often
times speed is​ a​ very significant factor in​ completing a​ profitable transaction and in​ those cases it​ often makes sense to​ pay for a​ short-term private money
option rather than loose the​ deal .​
Frequently the​ condition of​ a​ property won't allow for the​ initial financing with conventional money,​ and in​ those cases
private money may be used .​
Often the​ type of​ property is​ a​ factor: banks don't like lending on​ raw land and lots,​ but private money lenders are more inclined
to do so .​
Cash leverage is​ another factor .​
Fairfield Financial,​ for example,​ loans based on​ the​ true value of​ a​ property,​ not the​ purchase price,​ so
sometimes we lend 100% of​ the​ total acquisition cost for a​ property .​
The structure of​ the​ deal may be a​ factor .​
Most private money lenders allow the​ buyer to​
establish their equity through the​ mechanism of​ a​ seller carry back; banks won't do this .​
The list goes on​ and on.
What is​ the​ most common use for private money?
Most common loans are probably construction,​ rehab,​ and land development loans .​
We have an​ entire FAQ devoted to​ these loans: see the​ Rehab and Construction
Loan FAQ.
How fast can private money loans close?
In a​ matter of​ one or​ two days,​ but more typically,​ you​ should figure on​ 1-2 weeks .​
(Keep in​ mind that it​ is​ only possible for the​ lender to​ move quickly if​
the borrower,​ broker and other third parties are moving quickly as​ well.)
Is an​ appraisal required?
Some private money lenders require them .​
Evidence of​ value is​ a​ critical part of​ the​ private money loan process .​
However,​ it​ is​ in​ my opinion that a​ good set
of comps is​ just as​ effective in​ establishing value as​ a​ good appraisal .​
Many of​ our borrowers are professional investors,​ and I​ feel that they are qualified
to perform the​ value analysis .​
This allows us to​ streamline the​ process .​
However,​ it​ is​ important to​ note that putting together a​ god set of​ comps is​ hard
work .​
As a​ mainstream mortgage broker,​ I​ don't see much of​ this type of​ thing .​
Why should I​ be interested in​ private money?
To be perfectly frank,​ it​ is​ my belief that mainstream mortgage brokers are being squeezed out of​ the​ industry .​
Lenders are ramping up their operations to​
better provide online loan sourcing directly to​ borrowers .​
We saw a​ similar thing in​ the​ travel industry over the​ past years .​
The travel agents that have
survived,​ and even thrived,​ are the​ ones who effectively established niches within the​ industry .​
It is​ my belief that the​ same will be true for mortgage
brokers .​
Plain vanilla loans can be easily processed in​ an​ assembly line fashion which easily translates to​ the​ world of​ the​ novice and a​ web browser .​
Niche
lending,​ on​ the​ other hand,​ tends to​ be a​ hand-crafting of​ sorts,​ and cannot be easily automated .​
Look at​ private money .​
There are no absolute rules .​
Many
factors must be considered in​ making a​ decision and frequently those factors are intangible .​
Ultimately a​ high degree of​ thought work and common sense is​
involved .​
Private money will always be a​ people process .​
So if​ you​ tell me,​ I​ am not interested in​ private money because I​ don't do unusual loans,​ I​ say to​
you,​ you​ might want to​ reconsider.
As a​ mortgage broker bringing a​ transaction,​ how do they get paid?
It is​ simple .​
The broker brings the​ lender a​ borrower .​
The lender prices the​ loan to​ them .​
(Think of​ yourself as​ a​ wholesale buyer.) you​ price the​ loan to​
your client,​ adding your fees as​ appropriate .​
You stay involved in​ the​ loan (or not) as​ you​ choose,​ and prior to​ closing,​ you​ submit a​ fee demand to​ escrow
and receive a​ check directly from the​ title company .​
How do I​ go about doing a​ private money loan? Go to​ one of​ these providers and call a​ representative: www.rocklandcommercial.com,​
www.californiaprivatemoneyloan.com,​ and www.interestratepolice.com
There are basically four steps.
First,​ run the​ concept by them .​
You may call and discuss the​ loan with them,​ or​ you​ may e-mail a​ summary,​ or​ you​ may use our online loan submission engine,​
which will walk you​ through the​ process .​
If they like the​ project concept and feel that the​ numbers are acceptable,​ they proceed to​ the​ next step .​
They review a​ complete loan packet .​
They ask that this be sent via overnight mail or​ delivered to​ the​ office (fax copy is​ not acceptable) .​
If all this checks out,​ They ask the​ borrower for a​ deposit (generally $500) .​
This should be in​ the​ form of​ a​ cashier's check or​ money order .​
They provide a​
conditional loan commitment letter at​ this time .​
If the​ property checks out,​ They draw up the​ documents and close the​ loan through escrow .​
Is the​ deposit check refundable?
If they close the​ loan through escrow,​ the​ deposit is​ applied as​ a​ credit to​ the​ loan fees .​
If they don't close the​ loan because (a) the​ borrower does not or​
cannot perform or​ (b) the​ project upon inspection is​ significantly different than as​ represented,​ They keep the​ deposit to​ reimburse us for our costs .​
Otherwise,​ if​ they fails to​ perform for any reason,​ they return the​ deposit to​ the​ borrower.
What needs to​ be included in​ a​ private money loan package?
A private money loan packet is​ generally fairly straightforward .​
For a​ list of​ our packaging guidelines,​ please visit: www.rocklandcommercial.com,​
www.californiaprivatemoneyloan.com,​ and www.interestratepolice.com
Written by Jeff Chaney an​ experienced private money originator from Manhattan Beach,​ CA that lends nationwide .​
He can be reached at​ 800-572-4080






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