Private money lenders provide a vital resource for Oakland homeowners and real estate investors. With Bay Area property prices continuing to climb into the stratosphere, professional investors and average homeowners alike continue to build equity in their properties. As great as the price increases may be, there are many homeowners and real estate investors being frozen out of this vast wealth-building opportunity.

They are being frozen out by retail banks. Beholden to stockholders, loan committees, and government regulations, retail banks provide little flexibility in their lending terms. This rigidity harms real estate investors who need fast closings on nonstandard properties and homeowners trying to navigate difficult financial times in the Bay Area, where the cost of living continues to rise.

Private money lenders provide both a method of financing nonconforming deals and provide a lifeline to distressed borrowers.

Lending based on asset values makes it possible

Private money lenders, also known as hard money lenders, help borrowers where retail lenders cannot because they base their lending decisions on the value of the asset, not the borrower’s credit score or income. When they evaluate a loan opportunity from a real estate investor, they are able to appraise the value that the investor brings to the property through plans to rehab and sell the property at a profit, making private money lenders a great option for investors looking to fix and flip houses in the Bay Area.

Distressed homeowners have a way to save their home equity

Though the Bay Area’s housing market may be booming, households still have to navigate very high costs of living. This means that if something happens that breaks the budget, families can find themselves deeply in debt. A job loss, medical expense, illness, or some other event can leave homeowners behind, and catching up can seem nearly impossible.

Often, distressed homeowners try to refinance with a retail bank but find that their recent credit woes disqualify them. If they have had a change of circumstances that caused a loss in income, getting a new mortgage can be all but impossible. Because retail banks look at credit score and income, homeowners can find themselves locked out of retail-bank mortgage opportunities.

When homeowners have built up equity in their property, which often represents all they have, losing their homes to foreclosure is a devastating blow. Tens or even hundreds of thousands in equity can be lost. When the home is sold at auction, the bank simply collects its money, leaving nothing for the homeowner.

Borrowers in this circumstance can save their homes through a hard money loan. These loans generally require a loan-to-value ratio of 80 percent. With an 80 percent loan-to-value ratio, the loan amount can be no more than 80 percent of the home’s value. Because Bay Area prices continue to climb, many homeowners meet this criteria, even if they are in mortgage arrears.

A hard money loan provides distressed homeowners with the funds they need to get our of foreclosure. Then they are free to either sell the property and take their equity out or refinance into a traditional loan, once their finances are back on track.

Nonconforming real estate investment loans

When real estate investors find great fix-and-flip opportunities, they need to jump on them. Competition is fearsome. Private money loans provide the solution because they are granted quickly, often in just 24 hours.

Unlike retail bank loans, private money loans allow investors to qualify for a loan based on the value of a fix-and-flip property after the repairs are completed. This means they can loan 80 percent of the value that they will ultimately sell the property for, which allows them the cash they need to complete the project. This type of forward thinking, investment-based lending doesn’t come from retail banking institutions. It comes from private money lenders who understand what it takes to be successful in the art of flipping houses.