The concern for many investment property borrowers in recent years hasn’t been low interest rates; it has been the strict lending requirements by the conventional banks and financial institutions. If you are having difficulties in qualifying for a real estate mortgage loan on your non-owner occupant, income-producing property such as: rental, commercial (retail / warehouse / business) and other property types, a private-money mortgage lender may be a viable option for you.
Private money, also known as “hard-money”, comes from private investors or private lending institutions that are willing to loan money to purchase, rehab, or refinance existing investment property to pay off debts or for any reasonable reason.
Here are some pros and cons regarding private money mortgage loans:
- The loan could be an option if you were not able to qualify for a property investment loan because of insufficient income or credit or less than perfect property requirements. Another reason to use a private money mortgage is for the self-employed individuals who can’t provide proof of income.
- Underwriting hard money loans are not based solely on the individual. These types of loans are “equity driven”, meaning that the proposed collateralized real estate property has sufficient equity to lower the risk for the lender. A borrower with poor credit or income could possibly qualify if the investment property shows a likely profit and has a good “exit plan” to pay off the loan within the loan’s maturity date.
- The maturity dates of private money mortgage loans are for short terms, usually for 12 to 24 months. However, depending on the property type and the full spectrum of the loan application, longer terms are possible.
- Properties that need extensive renovations generally will not qualify at banks or at conventional lending institutions, no matter how good the credit or income. Private lenders can provide financing to get the property in saleable condition.
- The interest rates are higher with private mortgage lenders than the conventional banks: The higher the loan risk to the lender, the higher loan costs of interest rates and loan fees.
The application, the review for approval, through the loan processing then to loan closing can often take few weeks instead of many weeks from the conventional banks. Think Outside the Bank – Apply Now!