Many investors rely solely on private lending to purchase properties. You can go for this method, or combine private loans with traditional bank financing to get the capital you need.
If you have not worked with a private lender, we can help you understand what to expect when using private lending in FLORIDA.
We have put together a few things you should know about private lending. Ii may not work for everyone, but for real estate investors, private lending can be just the thing they need to see great profits.
Here’s what you can expect when using private lending in FLORIDA
Typically a less stringent and faster approval process
Many investors are attracted to private money loans as the ability to qualify is often much more lenient. Private lenders are looking more at the project you want to finance, then they are at you.
The loan is typically backed up by the property being purchased. This allows people with lower credit scores to still have the ability to flip a home. If the lender sees very clearly that you are making a great deal, they will be quick to finance you as they know they will see a timely return.
Expect to repay the loan quickly
A typical mortgage will take around 30 years to repay. A private money loan is typically paid back in months, not years. Private lending is usually expected to be repaid over a short period of time.
Private lenders expect quick returns, they aren’t set up as a bank is, where they can be paid back over the course of 20 years. This is ideal for someone flipping homes. You can get quick access to the cash you need, and be expected to pay it back quickly too.
You should prepare to pay a higher interest rate than you would with a bank
Private money loans, in contrast to traditional bank loans, offer borrowers the advantage of reduced bureaucratic hurdles and quicker processing times. This streamlined approach is particularly appealing for individuals or businesses seeking fast access to capital without the prolonged wait times often associated with conventional lending institutions. The efficiency of private money loans stems from their flexibility in underwriting criteria and the ability of private lenders to make decisions swiftly based on collateral and the borrower’s financial situation rather than rigid institutional policies. As a result, borrowers can obtain funds for various purposes, such as real estate investments or business expansions, in a timely manner, enabling them to capitalize on opportunities that require immediate financial backing.
However, the convenience of private money loans often comes at a cost, primarily in the form of higher interest rates compared to those offered by traditional banks. It’s not uncommon for private lenders to charge rates that are significantly higher, sometimes even double the rates seen in mainstream banking. This premium reflects the perceived risk taken on by private lenders, who may extend credit to borrowers with less established credit histories or to finance projects that traditional banks might deem too speculative. Consequently, borrowers considering private money loans should carefully weigh the benefits of expedited access to capital against the higher cost of borrowing. Moreover, there is a strong incentive for borrowers to repay these loans promptly to minimize the total interest paid, mitigating the impact of the higher interest rates and maximizing the benefits of this alternative financing option.
If you plan on holding the property for more than a couple months, you can always opt to refinance with a traditional loan from your bank.
Often times, investors will see a greater benefit in taking a loan with a higher rate in exchange for the speed and convenience they receive. Working with a bank can become a long and drawn out process, and by the time your financing is approved, the property you were after could be gone.