EDUCATIONAL

FREQUENTLY ASKED QUESTIONS

Private Money Financing FAQ

 

WHAT IS PRIVATE MONEY USED FOR?

Private money is generally used as a shorter-term loan of 6 years or less. More commonly known as a bridge loan, there is nearly always a clear exit strategy prior to funding.  It is used for all types of real estate secured financing:  multi-family/apartments, office, industrial, hotels/motels, land development, construction, rehab and even single family homes.

 

WHAT ARE THE INTEREST RATES?

Private money rates generally range from 10% to 15%.  The rate is determined by looking at a combination of factors: LTV ratio, strength of borrower(s), condition/desirability of property, actual cash-in or real equity contribution by borrower, purchase vs. refinance.

 

WHAT FEES ARE INVOLVED?

There are never any hidden fees and is equal to a % of the gross amount of the loan as well as our administrative and underwriting fees.

 

CAN THE FEES BE PAID FROM THE LOAN PROCEEDS?

Yes, if there is enough equity in the project.  This is frequently the case.

 

WHAT IS THE MOST COMMON USE FOR WHY BORROWERS USE PRIVATE MONEY?

Our most common loans are those that fall outside conventional lenders underwriting guidelines. Common problems include seasoning issues, sub-500 FICO scores, recent foreclosure or bankruptcy. Some borrowers require private money for distressed  properties that need repairs to attract better tenants. Other borrowers simply need  quick cash.  There are many reasons why borrowers need access to private money.  In fact, private money is becoming the new Alt-A and sub-prime loan.

 

WHAT SORT OF CREDIT DO YOU REQUIRE FROM THE BORROWER?

We underwrite each of our files with a common-sense approach. We do not have specific underwriting guidelines since each borrower and situation is unique.  Some may view our approach as an out-of-the-box underwriting style, but we just view it as a great way to provide creative solutions for our clients.  As far as credit, our approach is not to focus on the perfect credit score (though we do have borrowers with over 700 FICO).  We do look for patterns of payment over time and understand that everyone encounters financial hardships at some point in their lives.  We want to be there to help our borrowers, whether it is to provide opportunistic financing for acquisitions or simply providing a fresh start.

 

WHAT SORT OF FINANCIAL STABILITY DO YOU REQUIRE FROM THE BORROWER?

Our primary concern is determining that the borrower(s) has the ability to repay their debt. We analyze these factors through verification of income, liquid assets and understanding the complete financial picture of the borrower(s).  We like to understand the borrowers’ situation and how we can help.  Remember, we use our innate ability to assess the situation differently than most lenders by applying our common-sense underwriting approach to each loan.  So don’t be alarmed if we ask you “What’s the story”?

 

 

HOW FAST CAN PRIVATE MONEY LOANS CLOSE?

We generally ask for a minimum of 10 days from the time we receive the initial inquiry until closing. We can close faster to accommodate special circumstances.

 

WHY IS PRIVATE MONEY SOMETIMES REFERRED TO AS “HARD MONEY”?

It is difficult to find an answer to this question.  We’ve heard plenty of speculation.  Some people say that it’s because the money is used for “hard to do” loans.  Others say it is because the loans are “hard to get” or “hard to pay.”  It is our belief that it is called hard money because traditionally it has been “real money” in the sense that it is not borrowed.  Institutions borrow money and in this sense, they loan “soft money.”




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