Private Money Loans in Real Estate

A private loan is an installment loan that gives the borrower a fixed amount of money, often in one lump sum. Usually, unsecured, personal, or private loans don’t need any form of collateral to secure the funding.

Private money has many advantages over a bank or traditional loans. Typically, annual percentage rates (APRs) on personal loans can range from 3 to 36 percent, depending on your circumstances and needs. Although still higher than secured loan interest rates, that could be offset by the convenience and speed they offer. When considering a personal loan, it’s prudent to compare top lenders to ensure you get the best rates.

The best thing about personal loans is that you can use the money for almost anything, including buying real estate. In addition, personal loans interest rates are fixed and won’t change during the repayment period unless you default. Personal loans can be useful if you lack the equity to finance a property investment opportunity. Besides, they can be an excellent alternative to traditional real estate loans, as acquiring funding through traditional channels takes time.

As an experienced property investor will tell you, speed is everything. Securing a traditional bank loan may take several weeks to process. For example, when a good real estate fix and flip deal presents itself, then you need fast financing to make it happen. If you have to rely on traditional funding, such as a bank, the deal may fall through because of the time factor.

A better alternative may be to get private money funding. Private lenders who deal in real estate lending understand the dynamics of the industry and can get your money quickly, sometimes in a matter of hours.

To get unsecured personal loans, you don’t have to submit any collateral. You won’t have to put up your house, car, or other assets as a guarantee. In comparison, to get a traditional loan, you must have collateral and often face hefty prepayment penalties if, for some reason, you are unable to meet your payment obligations. You could lose your car or house. With a private loan, although there are consequences in terms of higher interest rates, you won’t have to worry about forfeiting a car or house.

Before issuing a loan, traditional banks require many documents that must be verified and signed. The process not only takes time but is quite invasive, exposing many aspects of your personal life. On the other hand, private money lenders often provide asset-based financing based on qualified collateral. Besides, you can often develop a long-term relationship with a private money lender after the initial transaction.

To qualify for private loan money is easier even if you have an employment gap, poor credit, or a past foreclosure. This is because the real estate property secures the personal loan. To determine eligibility, the private lender examines the property's condition to be acquired, the location, and repair requirements when reviewing your application; your creditworthiness is not of much consequence. This is what makes hard or private money relatively easier to get, especially when a hot real estate deal presents itself.