What is a Private Money Loan?
The vast majority of loans secured by real estate are institutional, with the loans originated and funded by banks, credit unions, and insurance companies. Private money, or ‘hard money’ lending, provides mortgage loans to borrowers who cannot be approved for a mortgage through a conventional lending source. Private money loans are generally made by companies like ACM that specialize in these types of loans. These companies aggregate funds that come from individuals, or small groups of individuals, often through their retirement plans.
Private money loans have higher interest rates and fees than a conventional mortgage. Most business purpose loans have interest-only payments and terms from 1 to 5 years. All consumer purpose loans are 30 year loans with the interest rate fixed for the first five years, and a fully amortizing payment.
Why does a borrower use private money?
Strict institutional lending guidelines often leave good borrowers without a lending option. For loans that meet our parameters, ACM will step into these situations and provide funding when conventional lenders will not. Some examples would be loans secured by multiple properties (blanket loans); loans to complete remodels already underway; bridge loans to buy a new home before selling the old home, etc.
How does a private money lender evaluate a prospective loan?
Well, we at ACM like to start by asking the question “Are we helping the borrower?” We want to be solving a problem or bettering the borrowers condition in some way. Based on common sense and on regulations imposed by the federal government, we are required to not only look primarily at the property (the security for the loan) but also at the “Ability to Repay” of the borrower and credit history. In short, a good reason to borrow usually turns out to also be a good reason to lend. We always want both sides to win.
What is a bridge loan?
Often a buyer will need to sell an existing property in order to have the down payment necessary to purchase a new one. If the timing doesn’t work – if the new property is found before the old one is sold – the buyer will have to find an alternative source for the down payment. One possibility is a bridge loan – a loan that is secured by the equity in the buyer’s old property. Because a bridge loan is short term, it will generally have a higher interest rate and fees than a conventional loan.
What are some common private money scenarios?
Here is just a partial list of scenarios where Private Money can help:
- Borrowers with credit challenges
- Borrowers who don’t qualify with a conventional lender, because of issues around length of employment, income, assets, number of properties financed, etc.
- Properties under construction.
- Situations where the borrower has to collateralize more than one property
- The borrower is a corporation, an irrevocable trust, a foreign national, or an estate
How can I become an investor with ACM?
You may contact Richard Redmond or Cindy Friel at 415-925-5252. The process is simple and straightforward, and will give us the information to determine whether trust deed investing is appropriate for your level of investment experience.