I have had real estate owners in San Mateo County ask me - what is a private money loan? A private money loan is a real estate loan funded by non-institutional sources.
Non-institutional sources of private money loans vary. The source could be an individual. Often it is a group of people who have pooled some funds together.
There are companies that specialize in the placing and funding of private money loans. These companies serve at least two important functions.
The first function they serve is the marketing of the availability of private money loans. They often post ads on Craigslist, trade publications, and other marketing vehicles to let both the public and mortgage brokers know that they have funds to lend.
The second function they serve for the private money source is similar to a funnel. They receive loan scenarios and toss out the ones they know that the private money source will not be interested in. They package the files that fits the source's interests, present the file, and receive approval.
Why would someone become a private money lender? Generally speaking, a private money lender gets a generous percentage return that is secured by real estate. To the lending source, it is an investment of their money. It is an investment alternative, just like investing in the stock market is an investment alternative.
Why would someone borrow private money funds? Well, that will be the subject of my next post that will tell the top ten reasons why someone would want or need a private money loan.
The terms of a private money loan are usually much different than the terms that banks offer. One major difference is the length of the term. Generally, private money loans are no longer than five years.
Another difference is the interest rate. Private money rates tend to be higher than the rates banks offer. Higher rates make sense because these loans are usually riskier.
The fees associated with a private money loan are usually higher than bank loans. It's not unusual to pay anywhere from three points to eight points to obtain a private money loan.
With the tightening of underwriting guidelines by banks, private money loans, I predict, will gain market share in the near future.
If you need help with a private money loan in San Mateo county, or anywhere in California, you can contact me and I will try to help you.
Do you need help making an effective financial decision? Call or text me at (650) 222-0386, or e-mail me.
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