Everything About Private Money Loans
Below is a MRR and PLR article in category Finance -> subcategory Other.
Everything You Need to Know About Private Money Loans
Understanding Private Money
Private money is often surrounded by misconceptions. Many professionals know little about it, leading to common misunderstandings.
What Is Private Money Used For?
Private money acts as a financial bridge, providing short to medium-term solutions (1-6 years) with a pre-planned exit strategy. It’s used for various real estate financing needs, including commercial properties, hotels, marinas, care facilities, construction, and more.
Interest Rates
Typically, private money loan interest rates range from 10-15%, influenced by factors such as:
- Loan-to-Value (LTV) ratio
- Borrower's financial strength
- Property condition
- Borrower’s equity contribution
Our rates usually fall between 12-13%.
Fees Involved
Lenders charge a loan fee, generally 5% of the loan amount. Additional fees include:
- Document preparation fee: $500+
- Property inspection fee: $500+
- Loan collection setup fee
No hidden fees are involved.
Can Fees Be Paid From Loan Proceeds?
Yes, if there's sufficient equity in the project.
Pre-Payment Penalties
Most loans have a 3-6 month minimum interest clause. If a loan is repaid within this time, an extra month's interest is required.
Why Choose Private Money Loans?
Despite higher costs, many borrowers prefer private money for its flexibility and speed. Real estate investors value the ability to make quick offers without traditional constraints. Private lenders also finance types of properties banks may avoid, such as raw land.
Common Uses
Commonly used for construction, rehab, and land development. For more details, check our Rehab and Construction Loan FAQ.
Loan Closure Time
Loans can close in 1-2 days but typically take 1-2 weeks, depending on the cooperation of all parties involved.
Is an Appraisal Required?
While some lenders require appraisals, evidence of value through comparables is often sufficient.
Why Should Mortgage Brokers Consider Private Money?
With the rise of online lending, traditional mortgage brokers face challenges. Specialized lending, like private money, requires personalized handling and can't be fully automated. This niche offers opportunities for brokers to thrive.
How Do Brokers Get Paid?
Brokers earn fees by bringing borrowers to lenders. Prices are set, and brokers add their fees, submitting them to escrow before closing.
Steps to Obtain a Private Money Loan
1. Discuss your concept with a provider.
2. Submit a complete loan packet.
3. Pay a deposit (usually $500).
4. If the property checks out, documents are prepared for closing through escrow.
Is the Deposit Refundable?
The deposit is credited to the loan fees if the loan closes. If it doesn't close due to borrower issues or misrepresented projects, the deposit covers costs. Otherwise, it's returned.
What’s Included in a Loan Package?
A loan packet is typically straightforward. For guidelines, visit the suggested providers online.
Authored by Jeff Chaney, an experienced private money originator based in Manhattan Beach, CA. Contact him at 800-572-4080.
You can find the original non-AI version of this article here: Everything About Private Money Loans.
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