There are plenty of reasons more and more home buyers are turning to private lenders when it comes to financing their homes. Private lenders help borrowers avoid complicated regulations and a time-consuming process. Here is a look at seven of the reasons private lenders have become so popular for home buyers.
Reasons Private Lending Is Growing in Popularity
Lower Qualification Standards. Traditional mortgage lenders like banks are highly regulated creating a tremendous amount of hard rules to qualify for a real estate loan. Private mortgage lenders have fewer restrictions, meaning lower qualifications. This means, if a borrower is afraid they may not qualify for a mortgage through a traditional lender, private money lenders may be able to help.
Lower Down Payments. Banks may ask for up to a 20% down payment in cash to qualify for a mortgage. Private lenders, more often, consider the value of the property that is being purchased than the size of the down payment. Certainly, a private lender will want to be assured borrowers have a certain amount of equity in a property, but it is often less, and sometimes much less, than 20%.
Less Paperwork. No one enjoys paperwork, and while there still will be a certain amount of it in a transaction with private lenders, it will be significantly less than with a traditional lender. The paperwork included with a hard money loan is there to protect both the lender and the borrower, not to satisfy government regulations.
Generally a Much Quicker Process. The loan approval process through a traditional lender source can be brutal and frustrating. With a hard money loan, the loan process is much more straight-forward and can be completed in a fraction of the time. This can be particularly important when purchasing an investment property when time is money.
More Flexible Payment Options. Banks and traditional lenders will often only offer a choice of cookie-cutter repayment options that may not suit a borrower’s particular needs. A private lender will be more apt to create terms that fit their budget and repayment time frame.
No Early Repayment Penalties. Believe it or not, a traditional lender will often penalize a borrower for paying off a mortgage loan off early. That is generally never a problem with a hard money loan from private lenders. They are pleased to have conducted a successful transaction.
They Are the Perfect Tool for Investment Properties. Private money lenders understand the opportunities and risks of investments. They want investors to be successful. This makes them the perfect resource for those who find a property that would qualify as a good investment. There are shorter term hard money loans that give an investor enough time to repair an investment property for income or rehabilitate it for resale. It is an excellent tool for investors to accomplish their goals.
This is a period where traditional loans can be challenging to acquire. While private lenders may charge a higher interest rate than traditional banks, the trade-offs can be well worth it. The point is, that for those who would like to purchase a home, a first home, or an investment property to hold onto or to “flip”, a hard money lender can be a terrific resource.