Private Money Fills a Niche in Mortgage Lending
Would you lend to a borrower in foreclosure? Or someone looking to buy a Older - Large Commercial Building whose value couldn't accurately be determined with a standard appraisal? How about refinancing someone's mortgage so the person can take out hundreds of thousands of dollars in cash?
For "hard
money" lenders, it's all in a day's work. These private individuals and
small local companies operate where even subprime lenders fear to tread,
making loans to the desperate and needy the same way regular banks and
brokers service traditional customers. They're harder to find than
mainstream lenders and they don't come cheap.
But they can help
hard-luck borrowers make bad situations better -- and sometimes, they're
a consumer's only choice.
"There are
private investors who, if the interest rate is high enough and the
perceived risk
is low enough, they will put the money up.
Brokers and other intermediaries who arrange hard money -- or private money -- loans "go to people who have money to lend and they match them up with people who can't get money any other way.
Commercial Property buying the 'hard' way
If that sounds a little like how the Mob works, don't
worry. Hard money lenders aren't loan sharks who break borrowers'
kneecaps when they can't repay. At the same time, these lenders aren't
your Granny Sue. They charge interest rates and fees that would make
conventional borrowers cringe and often base lending decisions on
whether there will be enough equity in their subject homes that they can
foreclose and still turn a profit. But private money fills a niche in
mortgage lending, helping consumers who have specialized needs or too
many credit problems to get conventional financing.
"It's across the board," says, a prominent private money investor in Newport Beach, California. "You'll see anything from a $150,000 foreclosure to a Two million-dollar loan, where somebody just needs so much cash out and can't verify their income to make it worthwhile for a traditional lender to look at."
For
instance, a local Mortgage Broker said, one of their hard money capital partners
recently did a large bridge loan for an investor purchasing a office
building, situated on a
very large parcel of land, near the Dana Point Harbor, Dana Point,
California.
Regular lenders balk at such deals because they don't like financing
properties in remote locations or those that aren't of standard frame,
concrete block or other traditional-type construction. Investor, buyers
sometimes use hard money loans, too. That's because conventional lenders
get antsy about mortgages for properties that derive
a substantial
portion of their
value from the land rather than the commercial building
and the income it produces .
Buyers of commercial properties and those who already own such properties and want to cash out large amounts of their equity via refinance loans also turn to private money. So do real estate investors. These buyers purchase properties on the cheap, fix them up and sell them for profit. They use private loans because the loans come with less red tape and restrictions than bank loans.
Borrowers facing foreclosure make up the last major category of hard money customers. When someone misses a mortgage payment, that person usually has some leeway to bring the loan current. But once a 30-day delinquency turns into pre-foreclosure or a 120-day or 180-day one, the lender will usually start the foreclosure process. At that point, the borrower is so far behind that even subprime lenders are reluctant to come in, refinance the loan and start the clock ticking again.
A hard
money lender, on the other hand, may be willing to give that person a
new loan. The customer can use it to pay off the original lender,
gaining enough time to sell the property and find a new place to live.
Borrowers who miss payments because of temporary problems, such as a job
loss, can benefit, too. They can use the breathing room a hard money
loan provides to rebuild their credit. By making payments on time for a
year or two, they'll lay the groundwork for a future refinance into a
more favorable loan.
"These are temporary fix loans. That's all they are -- to help people
get out of a bad situation.
If you find
one -- be prepared to pay
That said, hard money borrowers face a steep hill to
climb. For starters, hard money lenders can be difficult to find. Most
operate only within limited geographical areas because they like to see
the properties they're lending against personally and know the area
around them. Borrowers can try calling around to various mortgage
brokers, some of whom have private investors who do hard money loans or
know of people who do. Or, they can check their local newspaper's
classified advertisement section. Many papers have listings that read
something like this: "Can't get a loan? Call Us. Private Money
Available. Opportunity Capital Available."
Customers who can find a hard money lender shouldn't expect to be offered grade-A terms, though. Private money mortgages typically have rates well into the double-digits and often come with several upfront points. People who don't own at least 30 percent or 40 percent of their properties probably won't even be able to get a loan. That's because hard money lenders limit borrowers' loan-to-value ratios so they can at lease brake even if they have to sell off their properties during a foreclosure. Consumers need to watch out for "loan-to-own" predators, too. They structure hard money loans in such ways that borrowers inevitably fail just so they can take possession of their properties and profit off their sale.
"It's kind of the same rules you get on any loan -- clearly understand what it is you're getting into. Understand what the fees are and what the actual cost of the money is to you," our Capital Partners' say. "Be smart."
Despite the pitfalls, lenders say that hard money loans can provide borrowers a lifeline in times of need. Consumers just need to make sure their loans will help get them out of debt, not bury them even further.
Example
"If a Commercial Property is worth $1,000,000, the loan-to-value on a hard money loan may be 60 to 65 percent ( Larger LTV Ratios on a Case by Case Basis), so maybe $650,000 maximum on a first mortgage is loaned against the property" to pay off the old lender who's preparing to foreclose. it does not mean that that customer can't take the property and sell it tomorrow for $1,000,000 and reap the benefits of that additional $350,000. ..."A person is better off paying 14 percent, or a higher rate than the normal rate of 7 or 10%, to keep the property rather than lose it. Or say you don't get $1,000,000 for it, you get $900,000. Nine Hundred Thousand is better than zero."
When you need fast hard money loan, you need
a
commercial real estate lender
who can and will respond within your pressing time frame. When you
contact the Papke Group, you get an immediate response that includes
reviewing and analyzing your hard money commercial loan within 24 hours.
We have closed loans – including complex loans -- in as little as five
working days.
Enjoy the Benefits of Private Money Real Estate Loans
~
PapkeGroup-Emerald Financial and its Capital Partners
an Equal
Opportunity Lender.