Even brokers who usually work with traditional lenders can benefit from a relationship with a good private lender. Banks and typical mortgage companies won’t touch some kinds of loans or some types of buyers. Unless the broker can find alternative financing for a tricky commercial property loan or even some home loans, they will lose the deal. Learn more about the ways that private lenders can offer more opportunities to help improve a brokerage business.
When Does a Commercial Loan Need Private Investment Money?
Some companies need to purchase property before they can generate the revenue that they need to qualify for a regular business loan. They have a chicken-or-the-egg problem. However, private investors can offer them a commercial property loan to help them solve it. This is because these private investors consider the value of the property as one of the main factors to qualify the loan.
Private lenders can usually gather the information they need to make decisions quickly. This way, the business can obtain funding, get to work, and then look into obtaining separate financing later to pay back this type of loan. Because private lenders typically offer short-term financing until companies can gain financing, these kinds of loans are often called bridge loans.
When to Seek Private Home Loans?
Homeowners might need to seek private lenders for a variety of reasons. One of the most common examples includes people who need to buy a new home before they can sell their old one. With a mortgage on the old home, these clients might not qualify for the new loan. This frequently happens when homeowners get abruptly transferred by their company or get a new job in a different city. The owners know they will need to make payments on two homes for awhile; however, they have decided it’s the best financial decision to wait until they can get offered a good price for their first house.
These homeowners have to find a home for their family to live in quickly, and they can’t afford to wait until they sell the first house. Again, private lenders will primarily consider the value of the property that they will lend money for. They may also consider the reason that the homeowners want to buy a second house before selling the first. Private lenders can also make decisions much faster than banks can, so the family can get settled in a new city quickly. Once the first home sells, the family should qualify for a traditional mortgage and be able to pay the private lender back promptly.
Private Investment Property Loans
Property investors may have to act quickly when they find a good deal on an investment property. They certainly can’t wait weeks or even months for a bank mortgage officer to make a decision. If investors want to purchase multiple properties, they may never be able to qualify for regular mortgages anyway because their debt ratios will be too high for a regular mortgage lender.
Private investors qualify borrowers differently. They can offer lending approvals and cash quickly, so the investor can take advantage of the deal before it gets snapped up by a competitor. Property investors often plan to rehabilitate and sell the home, which gives them the funds to pay the lender back and take a profit.
Why Develop a Relationship With Private Lenders?
Of course, all private real estate lending companies aren’t the same. Even though it’s realistic to expect higher interest rates from private loans, it’s only fair for brokers to find lenders who will offer their clients rates and fees that are competitive with other private lenders. Mostly, brokers know that their clients want quick loan approvals, rapid funding, and minimal paperwork.