Private money lenders: An Excellent Alternative to Traditional Money Lenders

Private money lenders can be an excellent option for those investors, who are not able to convince the bank to finance their deals. Yes, it is a very common scene in real estate industry that an investor has a good deal on hand, but when they contact the traditional ways of financing, i.e. banks, the bank refuses to finance the deal on one ground or another. It is where private money lenders come as a great relief, and they carry so many advantages that sometimes, they seem to have an edge over the Bank. 

Who are they?
Any individual who has more than enough funds in the bank that they can afford to lend on loan can become a private lender. They must be willing to finance your deal. If they do so, they become a private lender. However, it is not necessary to have their funds in a bank only. The private lender may have their funds in a self-directed retirement plan or things like that. The core thing is that they must have enough money to lend others, and they must be willing to do so. 

How to Qualify to get a Loan from them
Whether or not you qualify for a loan from a private lender depends on the fact that how safe and secure is your deal, and how much risks are involved in the same. If the risk is much higher, they might be hesitant to finance your deal. After all, the money they are going to lend is their hard-earned money. They cannot risk it in an irrational manner. However, if you are able to convince the private money lender that your deal is quite clean and secure, I see no reason why they should reject your candidature for loan. In most cases, they won’t. 

Why do they finance your deal on such easy and soft terms?
That’s a good question. Why would a private lender want to finance your deal, when they can invest it somewhere else that involve lesser risks. Well, first thing is that these private lenders are usually not expert businessman or real estate investors. They are people with lots of money with them from one source or another. When it comes to lending money, they would never like to invest their money in stock market because that involves greater risk. When they find a prudent real estate investor like you looking for finance his/her deal, which is safe and secure, they normally do not think twice before saying “yes” to your proposal. After all, they are going to charge you a much higher rate of interest rate than that a bank does. This way they can earn some substantial profit without doing much labor and that too, without much risk. 

How much time does it take for the closing?
In comparison to traditional financing institution, private money lenders do not take much of your time. The reason is that the formalities involved in the procedure are very less. It does not involve submitting a lot of paperwork. Again, there is just one person who has to give his/her consent. There is no board of directors as such. Therefore, as soon as the private lenders get an appraisal on the property, they try to close the deal as quickly as possible. However, in order to ensure a fast closing, you need to prove that the property is safe and does not carry any risk, and that will be the security against the amount of the loan. Make sure that the title is clear and marketable. 

Do you require to submit any Particular document?
Not always. However, sometimes they may like you to buy the lender’s policy of title insurance for them at the time of closing. They may like you to have the property insured with their name as loss payee. 

Any Additional Expenses?
One bonus benefit with private lenders is that you do not need to pay any additional expenses for the procedure. There is no closing costs, no underwriting charges, nothing as such. 

Hence, private lenders are not necessarily any private organization as such. They can be your family and friends even. Anybody who has enough money to lend will be happy to finance your deal at a 10% or more return. In recent years, the number of real estate investors have dramatically increased, who prefer private lenders than banks because it takes very little time to get the approval, that too, without much hassle.

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