Nothing is exciting about going through the loan process, but it’s something that almost all of us have to do at some time. There are so many types of loans and lenders that it can be difficult for borrowers to figure out which one they need in a given situation. Whether you need finances for real estate, an exotic weekend getaway, or both, there’s a lender for your needs.
Finding lenders isn’t the hard part. Monitoring your credit score, negotiating for a good deal and fair interest rate, and finding the right lender are the hard parts. Private money loans are one of the more obscure types of loans, so continue reading to learn more about private money loans and lenders.
What are private money lenders?
Sometimes, some circumstances prevent people from getting a traditional loan. Problems like ow credit scores or even too-high loan amounts are the things that scare away traditional lenders. The good news is that private lenders often provide loan opportunities for those who can’t get a conventional loan.
A private money lender is an individual investor or group of private investors who lend money for mortgages, investment properties, and real estate for startups. As you can imagine, real estate investors are their top customers.
When is it a good idea to get a private money loan?
If you have a poor credit score, even if you have a lot of capital, it can be challenging to find viable financing options. Private money lenders often provide private loans for real estate deals customers who couldn’t get traditional mortgages.
Even though it might be easier for you to get a loan from a private lending financial institution than a traditional lender, your first step should still be to try to get a traditional loan. You tend to pay higher interest rates and down payment with private lenders because it mitigates some of the financial risk private lending institutions bear on a private loan.
If you come across a great deal on a piece of real estate and you need financing to purchase it quickly, going to a private lender could be your best option. With private financing, you don’t have to wait for the 30-day period that traditional mortgages have.
Private money financing is also a good option for someone intending to make a profit off of the real-estate they’re purchasing. If you have plans for purchasing a rental property or using a piece of real estate for an Airbnb, a private money lender might be your best choice.
Becoming a private investor is a great opportunity to get into real estate investing.
If you’re a high-net-worth individual who’s qualified to become an accredited investor, private money loans could be a great investment opportunity. Private money lending is similar to real estate investing in many ways, but it requires more capital.
To get into private money lending, you have to have a net worth of $1 million (not including the real estate property in which you live) or an annual income of at least $200,000 for the previous two years. The income threshold is $300,000 for a married couple.
Becoming a private money investor allows you to cash in on the many travelers trying to figure out how to budget for a weekend getaway somewhere exciting like New York City or Las Vegas. Whether you choose to become a real estate investor or a private money lender to real estate investors, there are plenty of profits to be made.
Are private money loans better than traditional mortgages?
There are plenty of benefits to dealing with private money lenders, but there are some things you should know before getting one. The first thing you need to know about private money loans is that private money lenders charge significantly higher interest rates than traditional lenders.
When getting a loan through a private money lender, you can expect to pay anywhere from 15% to 20% interest on your loan. In addition to a higher rate on the interest, you can also expect to pay anywhere from 20% to 30% on the down payment.