Guide to Help You Best Locate a Private or Hard Money Lender

    Where do you turn to when you need to borrow funds? Many individuals borrow money carelessly and end up regretting. It is important for you to make the best decision, though this would mean you to be patient and do a lot of research. But the sacrifice is worth it. You don’t want to get locked into expensive deals when there are cheaper alternatives. Choices have consequences. Make a poor decision, and you will end up ruining your financial status. In this discussion, we want to focus on helping you locate a private or hard money lender. Let us begin right away. 

    To begin with, private money lenders provide individuals with short term loans, often secured with a real estate property. In many cases, these loans are used to acquire homes. A private lender may be an individual friend or an established company. For this reason, they are often referred to as relationship-based lending. Nevertheless, many people refer to hard money lenders when referring to private lenders. This is because the loans offered in these arrangements are short-term, often take for home remodeling or acquisition. 

    Hard money lenders can help you better if indeed, you are a short-term investor. Still, there are three different classes of private lenders. These include:

    • Primary circle. This is essentially for family and friends.
    • Secondary circle: this is for colleagues, professional or other individual acquaintances
    • Third-party circle. This is specifically for accredited investors, along with hard money lenders. 

    Hard money lenders are often perceived as the third party since they are three furthest in terms of lender-borrower relationships. Both private and hard money lenders are suited for individuals in need of short-term fix flippers who have a very short-term duration. However, they can also suit long-term investors who want to rehabilitate an investment property before converting it into a permanent mortgage. With these basics, let us now discuss the tips you can use to locate a good private or hard money lender.


    • Where to get lenders


    As we highlighted at the outset, there are three sources of private money loans, including friends and family members, businesses, and accredited investors. You know better how to access your friends and family members. Other reputable lenders can be found online, and you can use to compare loans and check other reputable private money lenders. So, search for companies and accredited investors online. 

    Try to compare loans online to get the best deals. As you search, make sure there is contact information on their websites as well as their physical address. Also, look at their requirements along with the loan types they provide. If you need a local private lender, you can get more information from the hard money lender directory.


    • Maximum Loan Amount


    A good lender should some specific attributes that suit the requirements of the borrower. However, because you are the one in need of funds, you must do the homework and ensure you are getting the best deal. Look at the maximum amount the lender is willing to give. This value should be up to 90% of the lifetime value (LVT) of the property and up to 80% of the after repaired value (ARV). If you want the best deal, you will be tempted to negotiate for high amounts.

    Nevertheless, remember you will be required to repay the loan. So look at the offering and assess whether it is worth it. The LVT is a critical factor for consideration for hard money lenders if a property is in good condition. If it is not i9n good position, lending is based on ARV. 


    • The Minimum Down Payment


    How much deposit do you have? If you have not saved for the initial deposit, then you may not be able to afford the loan. Ut your goal is to locate a good private lender. So what should be the minimum down payment?  Well, a good lender should demand at least 10% of the lifetime value of the asset and 20% of the after-repair value. In most cases, if the down payment is large, the overall cost of the loan is lower. 


    • Interest rates


    Since these lenders come in different forms, you have to be very careful with the interest rates as well as other loan terms. The rates and terms of lending may vary significantly between lenders. Keep in mind that interest rates are costs on borrowing and so you should negotiate for lower rates. Obviously, lenders cannot charge the same interest rates even for the same loan amount. Nonetheless, a good private or hard money lender should charge interest between 7 and 12%. Any amount above this may be unbearable, while a value below 7% can be a red flag on the legitimacy of the deal. 

    There are other important factors to be considered under interest rates. For instance, a good rate should be in line with the loan term. The loan term should range between 1 and three years. If the loan term is longer, you are likely to have lower monthly payments. Nevertheless, the overall cost of the loan will be higher because of the accumulated interest rates. Usually, the approval of the application does not take time. In fact, it can be as short as 3 minutes. But how long will you be required wait before getting the funds? Ordinarily, funding ranges from 10 to 15 days.

    In most cases, you will be required to have a minimum credit score of 550 for approval. Know your credit score first before sending an application. It is also important to note that the loan is not amortized like an ordinary mortgage. Even though the interest rates may be higher compared to a common mortgage, the payments are often lesser.

    Private money lenders issue private funds that are guaranteed by real estate property. They are commonly known as hard money lenders. If you need private loans, you have to do good research to get a good lender. In this blog, we have discussed several tips you can use. Let us know what you think. Thank you!


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