Private money mortgages, also called private money loans, are very similar to conventional home mortgages that the majority of people are already familiar with. This type of loan is given to a borrower who has residential real estate to use as collateral for the loan they need. The primary difference is that the private money mortgage funds come from private investors – the private money lenders – rather than credit unions and banks.
With private money lenders, they are not as concerned with income history and credit scores. Instead, they look at the property’s value along with the total amount of equity the borrower actually has in the property in question. The focus on equity and value offers more flexibility that provides for private money lenders to be able to approve the funds faster than usual. Thanks to the fast approvals and the funding availability, real estate investors are able to utilize the services of a private money lender for all types of residential real estate financing.
In most cases, a private money lender is going to demand a down payment of a minimum of 25 percent. The down payment that these lenders require are usually higher than what is required from credit unions or banks but the trade off is that a private money lender has fewer requirements to get a loan approved. These lenders are also able to overlook issues such as poor credit along with other issues that may be on a borrower’s record, including short sales, bankruptcies, and foreclosures.
For most situations, private money lending is used for short-term purposes only. Borrowers are required to have an exit strategy for the private money loan when they apply. Lenders are often agreeable to terms of three to four years in most cases. Some of the most common types of exit strategies for a private money loan include refinancing using a long-term conventional loan or to sell the property to recoup the money loaned.
A private money lenders Arizona company is typically going to have a higher interest rate than more traditional 30-year bank loans. Usually, the interest rates charged by private money lenders range from the eight to 15 percent range depending on the specific lender, borrower, and the specific property along with the loan value that’s being requested. Even though the interest rates for a private money loan are much higher compared to a conventional bank loan, the quick funding and flexible lending criteria are usually worth the additional expense, especially for any real estate investor who wants to take advantage of this type of limited-time opportunity. Since a private money mortgage is only available for a short period, the total interest expense isn’t usually that significant during the course of the total investment.
Arizona private lenders usually charge much lower interest rates than the private lenders in different states. There are several private money lenders in Arizona and the increased competition helps to push the total interest rates lower.