Are you looking to make a real estate transaction? Perhaps you’ve found a good investment opportunity, but you’re having trouble securing a conventional bank loan because of a previous short sale of foreclosure or other credit issue. Perhaps you want to flip a house and need a quick loan that won’t take months to close. In any of these circumstance, you might find yourself in search of Fresno private money lenders. No doubt you have a few questions about the process. This article will help you to answer them.
What is a private money loan?
Private money loans, also known as hard money loans, involve borrowing from a private lender or group of private lenders, as opposed to a financial institution such as a bank. These loans are secured by real property, which the borrower puts up as collateral for the loan.
What are the differences between a private money loan and a conventional bank loan?
There are two primary ways a private money loan differs from a conventional bank loan:
1. Compared to a conventional bank loan, a private money loan will have higher interest rates and closing costs (points). This is because such loans are risky for lenders.
2. Private money loans, unlike conventional bank loans, are short-term. A mortgage, for instance, is typically paid back over a 15- or 30-year period, but you’ll typically pay back your private money loan in one to three years. Some Fresno private money loans may even have terms as short as six months.
What are the advantages of a private money loan?
Despite the higher interest and closing costs associated with hard money loans, there are three ways a private money loan is more advantageous than a conventional loan:
1. You can obtain your funds more quickly. While a conventional loan often requires two months to complete the approval and funding process, the funds from a hard money loan can potentially be available in less than fifteen days. If you’re an investor who needs to move quickly to close a deal, time is of the utmost importance.
2. Private money loans don’t rely on your credit history. Because you will be securing your loan with real property, your credit rating is not nearly as important as the value of your property. Therefore, even if you have marks against your credit, you can still secure a hard money loan.
3. While a conventional mortgage lender requires that a house be in good shape before issuing a loan, private money lenders will extend rehab financing. This means you can get a loan to use to both purchase a property and renovate it.
Investors who wish to buy a property that requires numerous repairs are most poised to benefit from a Fresno private money loan, as are those borrowers who may have insufficient credit to obtain a conventional mortgage.
What do I need to get a private money loan?
While there are few specific requirements governing private money loans in Fresno, you will need the following to obtain a hard money loan:
1. A property of sufficient value to secure the loan. This can be land, a single-family unit, a multi-family unit, a commercial property, or an industrial property.
2. A deed of trust
3. Proof of identity
4. A plan detailing how the private funds will be spent and what sort of return you expect
Once you decided a private money loan is the best option in your circumstances, you’ll want to estimate how much money you can potentially borrow. The amount of a hard money loan is calculated using a loan to value (LTV) ratio. This ratio typically ranges between 50% to 70% of the value of the real estate used to secure the loan. Your lender will use the lesser of the purchase price or the appraised value to calculate the amount of your loan.