A private money lender is one who provides secured short-term financing for the purchase, construction, and renovation of properties. Private money lenders are not institutionalized, meaning they don’t have a predetermined location where it is easier to find them. In fact, private money lenders, also known as hard money lenders are untraceable.
You have to be connected and known through the social circles to easily get appropriate moneylenders and funding such as Best Payday Loan Singapore. This article will take you through how this hard money lending industry works; how information is disseminated, the use of the loans, how to apply for these loans and some of the benefits of hard money lending.
Private Money Lending Operation
Here, we investigate how these lenders work. Generally, a private money lender may be used to mean any lender outside the traditional lending industry; such as family members, friends, a group of individuals, etc. however, when this term is used, it universally implies the hard money lenders.
Hard money lenders issue money loans to people for acquisition or renovation of an asset. The asset is in turn used as collateral for the loan and the higher the owner’s equity in the property, the higher the loan capacity. This type of financing can be ideal for both long- and short-term investments.
As indicated already, private lenders are subdivided into three categories; primary, secondary and third-party circles. The primary circle consists of friends and family members. The secondary circle, on the other hand, is comprised of personal acquaintances, professional industry players, and colleagues. While the third-party circle is made up of accredited investors and hard money lenders. Hard money lenders are the most popular and the most used group since they offer competitive loan rates, standard services, and manageable costs.
Ideal Practice Areas For Private Lenders
Ideally, private lenders are good for short-term finances. However, they can also engage in long term financing for construction and renovation. Below are some areas where private money may become handy.
- Quick fixes and flippers considering trading on their assets in a short period of time
- Long-term investments in purchasing and refinancing
- Financing investors with bad credit histories.
- Quick financing for short-term projects
Accessing Private Money Lenders
The first two classes of private money lenders are easily accessible from your neighborhoods, family and phonebooks. It is the third class which is trickier to locate. Hard money lenders can be accessed online through a third-party link. Or, you can locate them by “knowing someone who knows someone.” Also, you can get them through business and social events through referrals – they are not such trusting so you may need someone to do the introductions.
What You Should Consider When Shopping For Hard Money Financing
The process may turn tedious and intricate if you were to shop for a wrong lender. These are some of the considerations;
- You should know that private money lenders have specified fields of business. They are therefore specialized in the areas of their expertise, for instance, non-owner-occupied properties, purchase, renovation, real estate, etc. hence, you have to ensure you shop for the right lender to avoid inconveniences.
- Lender experience. Most lenders quote their time in the business. You can as well get this on the business website, however, for the case of a hard money lender, probe to know for how long they have been offering finance to the people. Their years around the industry help them to be well placed to react swiftly to any issues that come up during the term of the financing. It is, therefore, a great idea to deal with a seasoned business or individual in the business.
- Rates of interest. Only settle for the lender who offers the best and lowest rates in the market. For private lending, the rates are not regulated and are further not determined by the credit rating indices since they don’t even pull the ratings out. The rates are determined by the lenders themselves based on the risk component and the owner’s equity in the asset.
- The rates of interest have a substantial effect on the costs of the loan. The higher the rates interest, the more the costs are elevated. You might also want to look out for hidden costs and penalties if there are any. Often at times, these lenders ask the borrower to settle the entire amount agreed in case an early repayment is made. The extra charges are taken as a prepayment penalty.
Regardless of the lender, the loan application process remains the same. However, you have to learn prior to applying the requirements from the lender to expedite the approval process.
Benefits Of Hard Money Lending
Quick and easy – hard money loans are easy to apply and are approved in record time. It takes a few hours to evaluate your qualifications and disbursement of funds. If the property you are using as security is easily valued and your equity in it is established, then the remaining step is to send the funding to your account on agreed terms.
Low qualification standards – you do not need to have a stellar credit rating to qualify for a hard money loan. In fact, if you do not qualify for financing from the banks and credit unions, the hard money lenders are the most ideal location for you.
Additional financing – you are at liberty to apply for more financing for the renovation and furnishing of the home. Also, you can apply for loan refinancing using your home as security.
Private money lending as discussed is simply a form of non-institutionalized financing where the borrower gets a loan against their property. It can be used for real estate investment, private property purchases – land and buildings (commercial and private), property renovation or both purchase and renovation. Additionally, hard money financing is ideal when dealing with properties under foreclosure, short-sale properties and all other fast-moving properties which investors have to compete with time. securing financing with hard money lenders becomes easier and convenient for investors.