Have you spied a real estate property that you think will make an excellent investment? If so, you might need financing fast. Unfortunately, the conventional loan process can take sixty to ninety days, and by the time you wade through the paperwork and wait for your money, that investment opportunity may have slipped through your fingers. That’s one of the many reasons some people seek out private money loans.
Private money loans, also known as hard money loans, have as their funding source private individuals or a pool of private individuals. Irvine private money lenders can supply funds for your latest venture, but is private money lending right for you?
What is an Irvine private money loan, and who uses them?
When you obtain a private money loan, you’ll be borrowing from an individual investor that is not backed by a financial institution such as a bank. You’ll need to convince the investor that your idea is profitable, and you’ll need to use your property as collateral for the loan.
Private money loans are typically used by people who need to (1) finance deals that won’t qualify for a conventional loan, (2) obtain financing quickly, or (3) don’t have adequate credit to obtain a traditional loan. If you’ve experienced a short sale or a foreclosure, for instance, you might find that a private money loan is right for you.
Advantages and Disadvantage of Irvine Private Money Loans
Because of the risk involved to the loaner, private money loans tend to come with higher interest rates and closing costs than conventional mortgages. Your interest rate, for instance, might range from 10 to 15 percent, and the points might be from 2 to 4 percent. You will also have to pay the loan back much more quickly than a conventional loan. While the terms of traditional mortgages are typically 15, 20, or 30 years, a hard money loan will generally be repaid in 1, 2, or 3 years.
Despite these higher costs, private money loans do have some significant advantages over conventional loans:
• You can obtain rehab financing for a damaged property. A conventional lender is going to want the property you are purchasing to already be in good shape, but a private money lender is willing to loan you the money you need to purchase the property and fix it up simultaneously. This allows for “fix and flip” deals.
• You can secure a loan even if you have poor credit. Because a private money loan is backed by the value of your real estate, which you are using as collateral, you don’t need to have stellar credit to obtain one. Irvine private money lenders care about the potential profitability of your real estate more than either your financial history or your credit score.
• Private money loans allow you to seize investment opportunities quickly. The entire hard money loan process, from application to funding, usually lasts less than fifteen days, instead of upwards to ninety.
How Can a Borrower Secure an Irvine Private Money Loan?
To secure an Irvine hard money loan, you’ll need a property of sufficient value. A wide range of real estate can be used to secure a hard money loan, including land, industrial property, commercial property, single family housing, and multi-family housing. Your loan amount will be calculated based on the value of the property, using a loan to value ratio. Most private money lenders will extend you credit equal to 50 to 75 percent of the property’s value. Irvine private money lenders will also want to see your investment plan. How do you expect to make money from this real estate venture? You’ll need to describes how the borrowed money will be spent and what sort of return on investment you anticipate. Finally, most Irvine private money lenders will want you to furnish a deed of trust, proof of identity, and a note.