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Flip Houses Faster with Private Money Lenders

Why would a real estate investor go with private money lenders?

Do you need to close on a real estate deal, but can’t get approved for a real estate loan? It can happen if you’ve got a bad credit history. Or is traditional financing too slow, and a conventional lender won’t speed up the process?

The easiest way for real estate investors to get commercial real estate financing might just be with private money lenders.

What is a Private Money Lender?

A private money lender is someone (or an organization) that real estate investors can go to for a loan that doesn’t come from a bank or a credit union.

Essentially, a private money loan is a lending that is given to an individual or company by a private organization or even a wealthy individual.

Because private money lending does not come through a traditional lender, it is not subject to the same regulations or requirements that you see with a conventional loan.

Individuals or companies which engage in private lending are often referred to as hard money lenders.

If a hard money lender knows what the borrower wants to use the money for—and that reason is a risky one—the interest rate may be higher if the lender feels there’s a higher chance of losing their investment.

A hard money loan often comes from a few independent investors who are looking for an investment return. They may be known in the local business community. If they are, then a house flipper will do well to speak with their business peers before signing anything.

As with any business transaction, if it looks and feels like it’s too good to be true, then it probably is.

Private Money Lender Rates, Terms & Qualifications

In May 2022, the average rate on a conventional 30-year fixed-rate mortgage was 5.09%, as per Freddie Mac. But hard money loans can have much higher interest rates, often 8 – 15%.

Hard money loans can be more expensive depending on the preferred loan-to-value (LTV) ratio of the lender. If a lender will only finance 70 – 80% (or less) of the property’s value, you’ll likely need to bring a sizable down payment to the closing table.

If you do not have the cash for this, then you might have a difficult time finding a hard money lender who will work with you. But this can also be an issue with more standard lending.

Repayment terms tend to be only a few years (most of the time, up to 24 months). Contrast this with a mortgage from a regular lending institution, which is often fifteen to thirty years long. But for house flipping, a lengthy loan is generally going to be overkill.

A national hard money lender will want a minimum credit score of at least 600. Depending on the project, some lenders will look at the project’s potential more closely than the borrower’s personal financial statement.

Private Money Lenders Benefits

Pro 1 – Bad Credit is No Problem

Private money loans are a great solution for a borrower with less-than-stellar credit. For a person looking for a flip loan to fix up real estate, private money loans can be the best option.

And the house flipper won’t have to take out any personal loans on the real estate. They may be able to avoid having to max out a credit card.

Working with a hard money lender who wants to sink funds into a real estate investment property means the borrower can go ahead and bring the rental property up to snuff so it can start to generate a profit.

Pro 2 – Easier Approval Process

Hard money loan requirements are laxer than those for a regular real estate loan. Underwriting is not as strict. Real estate investors provide private money loans based on the profitability of the real estate investment property.

Hard money lenders will provide, say, a bridge loan because they feel the real estate investment property has potential.

Even a house flipper with good credit can have issues getting more than a short-term loan. But the terms for a hard money loan can be better.

Pro 3 – Flexibility and Speed

If a house flipper has been recently approved for a hard money loan, then they have likely also been recently funded. An investor group isn’t waiting around to make sure their hard money loan will pass regulatory muster.

A real estate investing group is also less likely to put restrictions on a private loan. Or, at least, the private lender will add fewer restrictions. The investor doesn’t have to worry about SBA restrictions because the SBA isn’t involved.

To have in mind

Private, hard money loans are out there. But the choices can be dizzying! Understanding what is best for your particular situation can take time. But if you’re a house flipper, you don’t have the time for that.

That’s where Amerishop Business Credit Builders can really shine. Contact us today to learn more about how we can work with you to get the best financing to suit your unique needs. We know how hard money loans work.

Contact Us Today


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