Everyday more and more borrowers become fed up with the stringent requirements banks and credit unions impose for conventional mortgage loans. This had led more borrowers to seek alternative financing solutions, like those offered by private money lenders. The problem is that most borrowers don’t know how to find private money lenders. Most providers don’t have a typical brick and mortar location you can just walk into and ask for money. Even if you know of a few providers, how do you know what they’re offering is a good deal?
While it may seem challenging to find a private money lender for your next real estate loan, there are some things you can do to make your search a bit easier. In this quick guide, we’ll go over what a private lender is and how to find private lenders in your area.
What is a Private Lender?
A private lender refers to any person, business, trust, organization that lends money to borrowers. Theses lenders are not affiliated with traditional lending institutions such as banks or credit unions.
Technically, a family member, friends, and even acquaintances can be private lenders, although when most people think of a private lender they think of accredited investors, hard money lenders, or other private lending companies.
Unlike a friend or parent, who might lend you money with a handshake deal, formal private lenders typically offer private loans to borrowers seeking a unique solution to finance often complex real estate transactions. Private lenders, sometimes referred to as hard money lenders, can be extremely beneficial for real estate investors and business owners alike.
What Makes Private Lenders Different Than Traditional Lenders?
While both private lenders and traditional lenders both offer loans for real estate, there are several features that set private lenders apart from traditional lenders.
One of the biggest differences between private lenders and traditional lenders are the types of situations they will extend credit toward. For example, most banks and credit unions are more risk adverse, so they tend to shy away from “riskier” loan requests such as those used for fix-and-flip investments or to assist with probate and estate obligations.
Another difference between the two is that traditional lenders must adhere to very strict federal and state regulations. This red tape inhibits flexibility in the mortgage solutions traditional lenders can offer. It also can gum up the approval process, making it much slower. Private lenders can approve and fund a deal in a few days, whereas traditional lenders may take thirty to sixty days or longer.
Additionally, traditional lenders have more stringent underwriting requirements that borrowers must meet in order to qualify for a new real estate loan, putting more emphasis on borrower characteristics such as employment history and credit score. Private lenders take a more asset-based approach to lending, making private money loans more efficient and flexible.
While borrowers may have to do a little more upfront research on how to find private money lenders, since there are fewer providers compared the number of banks and credit unions, once one is found you can expect a much more client-centric experience. Here are three other factors that set private lenders apart from traditional lenders.
Shorter Repayment Periods
Both private and traditional lenders extend credit with the expectation you will repay the funds within an agreed upon time. But that repayment period can vary depending on which type of lender you choose.
Traditional lenders often stick to longer repayment periods, extending fifteen to thirty years. But if you intend to repay the loan on a shorter timetable, they don’t have great solutions that fit that strategy. This can be problematic, especially when your financing needs end up changing.
Private lenders routinely allow shorter repayment periods, usually between one and five years, making them ideally suited for borrowers seeking additional flexibility.
Minimal Paperwork
Applying for a conventional mortgage can be a painstaking process. Borrowers are often required to complete a mountain of paperwork with no guarantee that their loan request will actually be approved. This is on top of having to provide stacks of financial documents that underwriters will use to determine if you are credit worthy. It’s enough to make you sick!
Using a private lender, you will only have to complete minimal paperwork for a credit decision to be made. Since private lenders take an asset-based approach to lending, they don’t need the same documentation that traditional lenders require, making the process much more streamlined.
Personalized Service
The problem with a lot of traditional lenders is that they have a national footprint, meaning they service a lot of areas. While that may initially sound advantageous, the problem is that the attention your loan request receives is greatly diminished. You become more of a number than a person on the other end of the line. It can also be challenging getting the answers to your questions and if you do end up talking with someone, they are often in a department in another state that doesn’t fully grasp your unique situation.
The great thing about choosing a private money lender is the personal service they provide. They are local real estate experts that service clients locally, meaning they have the knowledge and resources to give your credit request the attention it deserves. Private lenders can even create customize financing solutions tailored to helping you achieve your specific real estate objectives.
Tips On How to Find Private Money Lenders
If you are wondering how to find private mortgage lenders in your area, you are not alone. Every day hundreds of borrowers wonder how to find private money lenders that they can use for their next real estate loan.
But finding a private money lender might be easier than you might think. Let’s review a few quick tips on how to find private money lenders for your next real estate loan.
Tip #1: Understand How Private Money Lending Works
If you want to know how to find private money lenders, its first important that you have a solid understanding of how private money lending works. There are a variety of private money lenders that all offer different solutions depending on your overarching real estate goals.
Using an informal private money lender might look a little different than using an accredited private money provider. Furthermore, some private money lenders specialize in specific types of private money real estate loans. Knowing your specific needs and having a concrete financing strategy can make identifying a private money lender much easier.
Tip #2: Utilize a Mix of Resources to Find the Right Private Lending Partner
Some borrowers wondering how to find private money lenders simply hop online and choose the first lender in their search results. But the process requires a little more attention if you want to find a suitable private money lender that fits your unique financing strategy.
It’s important to utilize a mix of resources when researching the perfect private money lender for your real estate situation. Browsing providers online will allow you to compile a list of potential candidates but take your research a step further.
If you are an investor, try networking with other investors and individuals who have had success with private money lending companies. You would be surprised the information you can get from meeting people at local real estate seminars, workshops, and association events. Other professionals can provide key referrals and recommendations on which private money lenders to utilize.
You can also find out how to find private money lenders by conducting a marketing campaign online or through social media. If you follow this path, make sure to include specific details about your project or the kind of funding you’re interested in.
Tip #3: Review Online Testimonials for Private Lender Company and Loan Officer
There are several large private money lenders with a national presence. The problem is that many of these companies don’t deliver what they promise. If you want to find the best private money lenders, consider researching their past client testimonials on Zillow or Google to narrowing your search to providers that can offer tailored solutions and customer service.
The Best Private Money Lenders, Independent Lending
Once you know about Independent Lending, you won’t have to wonder how to find private money lenders for your next real estate loan. Independent Lending is California’s premier private money lender, offering unique and flexible private money loans tailored to meet your specific real estate objectives. Independent Lending knows the local real estate market and pride’s itself on getting you results in an efficient and timely manner. Utilizing a client-centric asset-based lending approach, Independent Lending can approve and fund your private money loan in as little as a few days. Contact us today to discover how Independent Lending can support you!
