Private Money Lenders: An Alternative Financing Option
An overlooked phenomenon during the subprime private mortgage crisis is the concurrent slowdown in the commercial mortgage industry. Commercial property owners and investors are experiencing difficulties in securing financing similar to those experienced by individual homeowners looking to buy their first home or to refinance their current home. One financing option that is gaining in popularity with businesspeople is hard money or private lending. This flexible option provides financing that may not be readily available from traditional lenders such as banks.
Private money lenders are financiers that have different requirements for funding loans, requirements that often work in favor of business people and property owners. These lenders, also called hard money lenders, require less verification paperwork than traditional lenders. Their primary concern is the value of the property or project that the loan is designated for, not the creditworthiness of the borrower. Therefore, qualifying for these loans is typically easier than qualifying for a bank loan.
You can get private money financing for property purchases, renovations, even for vacant land that you plan to develop. There are more stringent requirements for private money loans, however. The life of the loan is much shorter than a traditional loan. Usually hard money loans come due in full within 18-24 months of disbursement. Also, these loans have less favorable (higher) interest rates than standard loans, as lenders are taking a greater risk when making these loans. The property you are financing serves as your collateral; if you fail to repay the loan, it will be confiscated and resold. Despite the restrictions, private money loans are a viable alternative when seeking funding.
In today’s difficult lending market, even borrowers with solid collateral and years of experience in acquiring, renovating and managing property may find it impossible to get funding. Short of seeking unsecured loans based on personal credit, private money lenders may provide much needed relief when seeking funding for solid, money-making projects.
Great article. Do you think hard money lenders would be a truly viable option for homeowners wanting to refinance?