Private money loans, also called hard money loans, are offered through non-traditional lenders. They are typically short-term loans that are used for the purchase or renovation of properties.
These loans are made possible because they are secured by the real estate asset. While a private money loan can be from a friend or family member, there are private lending companies that specialize in offering these loans and working with investors.
Hard money lenders are often reliable and can offer standard interest rates, costs, fees, and loan terms. When referring to these as short-term loans, the duration of the loan is typically one to three years.
Private money loans are ideal for house flippers who are looking to purchase a property, renovate it, and then sell it in a year or less. They are also suitable for someone looking to buy a property, rehabilitate it, and refinance it with a traditional mortgage lender. Investors who do not qualify for a conventional loan or those who need financing quickly are also common private money lenders.
The terms available for a loan will depend on a wide range of factors, so it is best to contact the lender directly. Services like Bay Mountain Capital can help you go through the application process and see what kind of options are available to you.
Typically, you will be able to borrow up to 90% of the total cost. The term of the loan will be one to three years, and it will take 10 to 15 days to get the funding once it is approved. In most cases, you need a minimum credit score of 550, but don’t be afraid to apply if your credit is less than that.
In addition to the loan interest rate, you can anticipate lender fees ranging from 1.5% to 10%, closing costs that range from 2% to 5%, and the cost of an independent appraisal. Many of these expectations are the same as working with a traditional lender.
When applying for a private money loan, you should expect to pay a higher interest rate than with a traditional mortgage due to the increased risk being taken on by the lender. However, payments are not amortized with a private money loan the way they are with a traditional mortgage, so the monthly payments are less. If you are planning to flip a house and pay off the loan early, this will work in your favor.
When applying for a hard money loan, you will likely need to provide bank statements for more than one consecutive month. You will also need information on the property you are attempting to buy or renovate, including the property’s location and the purchase price.
If the loan is to renovate a property, you may also need to provide a scope of the work to be done, any contractor bids, and a CV detailing your work experience and related previous projects.
Another advantage of a hard money loan is that they often work for people who do not qualify for traditional loans. Also, you can take out multiple loans at once, for multiple properties.
The best way to get the exact information you need about private money lenders in Texas is to contact Bay Mountain Capital and ask them about their rates, fees, and processes. If you feel it is the best option for you, go through the application process and see what you are offered.
Many people assume conventional loans with conventional lenders are always the safest option, but that is often not true.