What is a Private Money Loan?
A private money loan is similar to a conventional home mortgage most people are familiar with. A loan is provided to a borrower with residential real estate serving as the collateral for the loan. The main difference is that with private money loans the source of funds is from private investors (private money lenders) as opposed to banks and credit unions.
The private money lenders are much less concerned with credit scores and income history but rather focus of the value of the property as well as the amount of equity the borrower has in this property. The focus on value and equity provides a great deal of flexibility that allows for private money lenders to approve and fund loans very quickly. The fast approvals and funding is the main reason real estate investors utilize the services of private money lenders for their residential real estate financing.
Private money lenders typically require a down payment of at least 25%. This down payment requirement is often higher than what is required from banks and credit unions but the trade off is that private money lenders have far fewer requirements for loan approval. They are also able to overlook poor credit or other issues on a borrower’s record such as foreclosures, bankruptcies and short sales.
Private money lending is for short-term use only. Borrowers must have an exit strategy or two for the private money loan when they are applying for it. Terms of up to 3-4 years are generally available. Common exit strategies for private money loans include refinancing with a long-term conventional loan or selling the property.
Private money lending companies have higher interest rates than traditional 30-year bank loans. Private money lender interest rates can range from 8-15% depending on the lender, borrower, specific property and loan to value being requested. While the private money loan interest rates are higher compared to bank loans, the flexible lending criteria and quick funding is worth the added expense, especially for real estate investors looking to take advantage of a limited-time opportunity. Because private money loans are only available for shorter terms, the interest expense often isn’t significant over the course of the entire investment.
California private lenders typically change lower interest rates than private lenders in other states. There are many private money lenders in California and the increased competition pushes the interest rates down.
How to Obtain a Private Money Loan from North Coast Financial
Applying for a private money loan from North Coast Financial is quick and easy. The borrower simply needs to submit the private money loan application. Once North Coast Financial receives the application they will review and then notify the borrower whether or not their private money loan request has been approved. The approval process is often completed the same day the application is received.
Once approved, North Coast Financial can fund the loan in as few as 3-5 days for investment property. Owner occupied loans typically take 2.5 weeks due to the current federal regulations that all lenders must comply with.
Loan approval is primary based on the current value of the real estate being used as collateral and the borrower’s equity in the real estate. Current credit scores, bankruptcies, foreclosures, short sales, loan modifications and other issues on a private money borrower’s record are not major concerns for private money lenders as long as the borrower has a significant down payment or equity in the real estate.
Once the private money loan is approved and ready to be funded, North Coast Financial gets to work quickly and works closely with the borrower throughout the entire financing process. North Coast Financial prepares all of the necessary disclosures and loan documents and answers all questions along the way.
When escrow is ready for funds, North Coast Financial will have the funds wired to escrow so the deal can be closed.
Private Money vs. Hard Money
In the eyes of most lenders and borrowers, there is little to no difference between a private money loan and a hard money loan. In both cases, the source of the funds is a private investor outside of the conventional banking system and the loan is secured by residential or commercial real estate. Some may refer to “hard money lenders” as established companies that offer their lending services, while a private money lender may refer to an individual investor who is willing to loan their personal funds.
Regardless of the distinction between the similar sources of funds, the process of creating the loan is generally the same. In both cases the loan needs to have the required disclosures, documents and go through the necessary processes to ensure the loan is closed properly. A private money loan originated by an experienced and licensed mortgage broker will ensure everything is done legally so all of the involved parties to the loan are protected.
Contact North Coast Financial now for private money loans in Southern California, Northern California and Central California. We specialize in Los Angeles, San Diego, San Francisco Bay Area, Orange County, Newport Beach, Riverside, San Bernardino, Ventura and Sacramento.