A private money loan — also known as a hard money loan — is used when a traditional loan provided by a bank just won’t work. Funded by private lenders, these loans can be useful to all types of consumers and are commonly acquired by investors such as developers or house flippers.
Why would you need a private money loan? If you’re one of the people mentioned above, you’re self-employed, or in another unique situation, you may not qualify for a traditional mortgage. In some cases, such as flipping houses, you also won’t have months to wait for a loan to close. Private money loans are meant to be fast and efficient, and are based on common-sense decisions for unique real estate situations.
Read on to learn how a private money lender works and when to get a private money loan.
What is a private money lender and how do they work?
Private money lenders are just that — private organizations that provide loans to companies or individuals rather than institutional banks. The loans are secured by real estate assets.
Traditional bank mortgages differ by requiring several records of financial documentation and a high enough credit score for approval. You need to have proof of income, sometimes spanning back a year or two. These regulations are driven by Congress-created mortgage companies Fannie Mae and Freddie Mac. The companies were created to add stability and affordability to the mortgage market, and they lead many of the underwriting decisions traditional lenders make.
Naturally, traditional lenders want to know that you can pay them back. But sometimes that can be difficult to prove.
Hard money lenders might require some documentation of income and assets, but they take a common-sense approach to your unique situation. They look at the whole picture rather than having you fulfill specific requirements.
Hard money loans are based on assets rather than repayment
Private money lenders are focused on your assets, such as the house or building you want to purchase, rather than your ability to repay the loan.
A common reason to use a private money lender is for speed and efficiency. They will provide financing upfront for your properties with a specific payback period, and can especially help those who are attempting unusual or challenging real estate transactions. If your loan makes sense to a private lender, they will fund it. It’s that simple.
When is the right time to get a loan through a private money lender?
Private money loans are best for short-term projects, because repayment periods usually are one to five years. That’s why they are perfect for fixing and selling homes, or to fund renovations for a property where you may eventually refinance to a conventional mortgage.
Marquee Funding Group is one of the only hard money lenders that offers long-term consumer loans ranging from 10 to 30 years, with fully amortized, or expensed, payment options.
With a hard money loan, money can be available in days, while traditional mortgages can take months. For example, if you purchased a property at an auction and need cash out prior to acquiring a conventional loan, you could use a hard money loan.
Having access to money fast with a private money loan means you are able to make offers you might not have been able to otherwise. Your chances of getting your dream property can quickly become a reality.
Other benefits of private money loans include:
- Increasing your down payment to avoid paying higher costs
- More flexibility to access cash, which is appealing to sellers who don’t want to deal with a bank or traditional loan process
- Ability to acquire a loan by negotiating terms rather than adhering to strict credit and income requirements
How do I know if a private money loan is right for me?
Private money loans can be the best option in several situations. These lenders make it possible for you to secure a loan even if your transaction is unique.
In addition to real estate investors and house flippers, a private money loan could work for families looking to invest in rental property for additional income, or for those looking to build their dream home but are unable to get a second mortgage.
Private money loans also can help those looking to consolidate debt and improve their credit, or for cash-out opportunities to finance business deals or for legal settlements.
Private money lenders help those in unique, time-sensitive situations by offering:
- Same-day approvals
- Closing in as fast as seven days
- Common-sense underwriting
Traditional bank loans require a lot of time and documentation that many situations don’t allow. For business owners who have a hard time proving traditional income through W-2 tax forms, or for homeowners with plenty of equity who might be having trouble keeping up with their mortgage payments, a private money loan allows the flexibility and grace to keep moving forward.
Lending guidelines from private money lenders are much more broad and allow more options, including:
- Loan amounts ranging from $50,000 to $20 million
- Loans for single family, multi-family, commercial, and industrial properties, and land
- Second or third mortgages, construction loans, and bridge financing
- Loan-to-Value ratio of up to 70%, depending on other factors
Are you interested in a private money loan?
If you are ready to take the next step in acquiring your private money loan and are located in California, Marquee Funding Group can help. We are a full-service mortgage banking firm that specializes in private money loans. We offer an alternative for borrowers who are unable to access institutional financing or who need a unique solution for their real estate transaction.
Marquee Funding Group’s loans are equity-based, and all related services such as origination, escrow, and investment sales are performed in-house for a streamlined experience. If your loan makes sense, our team can process it quickly and simply.
Contact us today to speak with our team of experts and begin the process. We are dedicated to offering the highest quality services and products in the industry, backed by decades of experience and education. We look forward to speaking with you and helping you achieve your investment goals.
If you already know what you need and are ready to start, complete this form to submit your loan request, and we will contact you.