What is Private Money?

Are you a Real Estate Investor in need of a mortgage with terrible credit?

Are you getting declined by every traditional lender or bank?

Do you own a company that has deductions on it's tax returns showing an income that Traditional Lending won’t approve?

If you answered “YES” to any of those questions above, it sounds like you’ll need a Private Money solution.

Private Money, also known as Hard Money, has a variety of different mortgage products that work with more risky clients. 

They overlook personal income, personal debt and pay more close attention to the investment property.

Another term is “Asset Based Lending” . This is where they give attention to the Asset, rather than the person!

If you want to see more details in regards to the difference between Traditional Mortgages and Private Money Mortgages, you can go to my other article.

However, to give you a little breakdown, Traditional Mortgages are more focused on Personal DTI (Debt-to-Income) ratios.

They sell their loans to Government Agencies such as Fannie Mae, Freddie Mac and Ginnie Mae. 

Each of these Agencies have specific requirements that you (The Borrower) must meet in order to obtain funding.

That is just one of the few differences between the two. We could get into how Traditional typically is more for Primary Homes, where Private Money is for Investment properties.

 There are plenty of reasons why Private money is a great way to get a mortgage IF you are an investor in Real Estate.

I’ve listed a few below:

• That’s right, if you have some skeletons in your 1040 or 1120, you don’t need to show the lenders SQUAT.
  
  
• In very rare instances do they request that, and typically it isn’t to verify income but that your business is a legit running business.

• That’s right! You could have a 500 score and still obtain funding.
  
  
• Do keep in mind though, your score still plays a role in your pricing and certain lenders do have their own minimums. As we say - “The Better the Score, the Better the Terms!”
  
  
• Have you checked your credit score? We recommend pulling your Credit Report with Experian.

• Okay, as you may know rates are currently on the rise. However, with Private Money lenders they usually sit around 1-2% higher than Traditional rates.
  
  
• Now is the time to refinance before rates get too out of hand though. We can help you by placing you in the RIGHT DIRECTION!

• If you plan to Fix & Flip or Fix & Hold a property, the standard LTV (Loan to Value) is 80% of the Purchase Price and 100% of the Rehab. Or 55-65% of the As Is Value and 100% of the Rehab for Refinances.
  
  
• Do keep in mind, normally disbursements are on an As Completed Basis for the rehab. If you finish the kitchen, the lender may require an inspection, receipts or pictures before giving you the money - but once you get the First Draw, it’s rinsed and repeated from there.

Now that we’ve highlighted the PROS, we can now highlight the CONS of Private Money:

• If your sibling had an issue with crashing every car they drove, what stipulations would you put on them borrowing your car? It’s the same with a lender's money.
  
  
• Since they are deciding to look the other way on certain issues, like credit history, criminal backgrounds (Unless Financial Crime), or
  personal income - they will require you to pay for it at closing unfortunately.
  
  
• Typically closing costs run between 10-15k - that’s for processing, underwriting, doc fees, lender points, broker points, escrow and even
  at times reserves.

20% is the MINIMUM Down Payment

• If you only have 1k in your bank account and you want to buy a 100k property… It’s best if you figure out other means to raise up the 20k for down payment.
  
  
• As stated in the last CON, you may want to raise up around 30-35k, unless you are doing Rehab, then you’d want 40-50k.

• The biggest misconception is that you get the rehab money right at closing to begin the work… IF refinancing, then that may be true.
  Not with a purchase.
  
  
• Lender’s want to ensure that the rehab money is being used for REHAB and nothing else. So, they have their disbursement processes to ensure the safety of their funds.

• Private Money only works with investment properties and commercial properties.
  
  
• If you need to finance a Primary Home we recommend you find a local broker or lender!