Qualifying For Private Money Lending
This Article On Qualifying For Private Money Lending For Investment Properties
Qualifying for private money lending is an alternative financing program that streamlines investment financing for non-occupant investment properties.
- It is asset-based and does not require all of the extensive paperwork a bank or commercial bank requires
- Traditional mortgage lenders will require good credit scores, two years of tax returns, bank statements, and other documents in order to close a mortgage loan
- However, with private money lending, lenders mainly consider the amount of down payment the property buyer can put down so they have skin in the game
- Closings with private money lending are often much quicker than traditional lending
In this article, we will discuss and cover Qualifying For Private Money Lending For Investment Properties.
How Do I Get Cash Out Of My Investor Property Without All Bank Paperwork?
This question is probably the main driving force Real Estate investors, rehabbers, and Realtors with current investors and new investor clients turn to private lenders or so-called hard money lenders.
Qualifying For Private Money Lending Versus Traditional Bank Loans
Banks, Credit Unions, traditional Fannie Mae, Freddie Mac, and Wall Street mortgage lenders have made it so labor and paperwork intensive:
- Credit review restrictive it is virtually impossible for the average person to get cash out from the equity of their current investment properties
- Even if you qualify for the Bank mortgage, or your mortgage broker finds you a more traditional lender, you need to have plenty of cash reserves to get the mortgage
- You can be on the job for 10 years, have plenty of income, have 720 credit score, and have very low credit payments, but you need reserves
If you don’t have 6 future mortgages, tax, and insurance payments, plus good retirement accounts such as 401k’s and IRA’s, you won’t qualify for a loan.
When being in the private money lending business as a private money lender, you need to know that your broker is as good an underwriter as Sherlock Holmes is a detective; well not just any detective, but the best detective in the world.
- As a private lender, you need to have super-sleuth skills
- You need to be able to see through the minuscule details that could cause a loan to go sideways or into default
- If caught early on, you can avoid investing in the wrong opportunity
- This, of course, depends on your risk tolerance
- If you’re fine with lending on construction projects (which are very high risk)
- Then you will know eventually how to vet them properly and put the right security measure in place to mitigate the amount of risk you actually have to take on
- If you don’t, you stand to lose a bit more than just your investment. You could lose a lot more
In this article, we will discuss and cover The Business Of Private Money Lending To Real Estate Investors.
Sherlock Holmes Is Like Our Private Money Lending Underwriters
Sherlock Holmes was well known for seeing things that most ordinary citizens would miss. It was interesting to watch how he used deductive reasoning many times to figure out minor details. This would of course bring him to theories that he and Watson could investigate together or separately and then regroup to come to a final finding. This usually led to the arrest of a criminal. That said, this can easily transmute into the world of private lending and for you, a private investor.
When someone comes to you the first thing you will almost assuredly hear is, “I have a KILLER deal for you!” This you of course just let it roll off your back as water does off a mallard duck. Then you begin to really listen to the “story” the tell you. In that story, all sorts of clues will be offered to tell you that this indeed is a great opportunity to invest in. However, it is up to you to truly know what the property is truly worth, the stability of the borrower and their ability to repay the loan ON TIME, and the ability to finish their exit strategy. Seems simple yes? Not so.
Risk Assessment Is Key In Private Money Lending
There are many times where fraud can occur if you’re not careful. In my first year as a private lender, I remember learning almost the hard way that if you don’t ask enough questions that you could indeed be “strung along” in the attempt to get you to lend on an opportunity. IT can come in the guise of a “Gap Funder”, and bridge loan or seller carry situation. In the mind of a broker or seasoned private lender, a 2nd isn’t entirely enforceable, and if the seller merely inflates the price of the property in order to entice you to lend on their opportunity, the 2nd is in fact MUTE. You have just financed 100% of the purchase price and in some cases the repair as well. It happens.
However, with the right practice, you can begin to tell when someone is being honest or unscrupulous in their dealings. (yes I’m doing this with Oxford English, I figured you’d like to think you were reading Sherlock Holmes words himself as he would give advice) This comes with time or knowing that your broker or brokerage is doing more than enough to vet opportunities before bringing them to you. Then you have the peace of mind needed to feel comfortable lending on any particular opportunity.
Hard Money
Investigative abilities are good at Gustan Cho Associates. We have a combined experience of 95+ years. You can rest assured we have already caught and called borrowers on the carpet for trying to finagle their way into a loan without having to put skin in the game.
We enjoy the fact that creative financing exists. However, we are also astute to the fact that there are those out there looking for a free ride and will not allow it. We’ve got to the closing table and stopped loans from happening because it is you our Private Investors that we want to protect first. Then the borrowers provided they’ve been honest. Let’s face it we’re all in this to earn a living, we can do it honestly. Learning how to be a super Sleuth like Sherlock Holmes will help you keep a clean portfolio of loans, OR, you can work with us at HMCG and relax knowing we have the experience to investigate a “deal” well enough that when the opportunity comes to you, it’s as safe as it can be.
To find out how to work with us as a private lender contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
Who Are Borrowers Qualifying For Private Money Lending?
Basically, most of the people that qualify for Bank loans, don’t need the money. What this means is Private Money, and Hard Money lenders are in more demand than ever before.
Credit Requirements For Banks Versus Qualifying For Private Money Lending
What if your credit isn’t perfect, and you have a single-family house or multi-unit investment property with plenty of equity?
- Walk into your neighborhood bank
- Ask the friendly personal banker what she thinks the chances of you getting a loan are
- Then when they tell you know walk into one of the big four banks that you see on every other corner and advertise how much they are in business to help you.
- If you don’t already know, and I assume most people reading this do know, they aren’t going to show you any love!
- This means they aren’t going to extend you any credit, lend you any money
- Chase does have free coffee
- Wells Fargo has nice pens. …
All of these banks will let you open an account, take your cash deposits, pay you .46% interest annually, and lend your money to other more “ borrowers” who probably don’t need the money as much as you.
Mortgage Rates On Private Money Lending
Private and Hard Money lenders often have higher interest rates, but give you less hassle. They typically lend you only about 65% of what your property appraises for. They are very lenient on credit, some don’t care at all, and most of the time they are really fast. They know most of the time you are borrowing money to buy another property and you make your money when you buy the property at a really cheap price, or you are borrowing the money to fix up your property so you can “flip it” and sell it for 30-100% profit.
Who Are Private Money Lending Investors?
The Private and Hard Money Lender in many ways is just like their typical borrower. They want a double-digit return on their typically 12-18%. They don’t want to earn .46% annually from Bank of America. They don’t want you to provide 3 years of tax returns, a blood and urine sample. They want you to borrow the money, make a lot of money on your cash investment, and then turn around and come back to them and borrow money again.
Private Money Lenders Are More Concerned With Equity Versus Credit
Just remember the driving force of a Private Money or Hard Money Lender is Equity you have on your Single Family, 1-4 units, or commercial investment properties.
If you have any questions or comments, or would like a referral to a reputable Private or Hard Money Lender, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
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