Private Money Mortgage Financing
Private Money Mortgage Financing
For Real Estate Investors who who need to purchase or refinance residential or commercial investment properties with no red tape that can close quickly the private money mortgage program is for you. There are no minimum credit score requirements. No income is stated for the borrower. This is truly Asset Based Lending.
Private Money Mortgage
Just what it sounds like. A Private Money Mortgage is from private investors not institutional lenders. The private investors create their own guidelines and are primarily concerned with the safety of their funds and secondly by the return on their investment. This is done by offering a lower loan to value and a higher interest rate than convention lending. The greater collateral reduces the potential risk associated with a borrower not qualifying for conventional financing.
In addition to ensuring adequate collateral for the risk, a private money lender will also consider the income generated by the property. This income or lack thereof can be sometimes overcome by a lower loan to value. This again increases the collateral and reduces the risk to the lender.
The Property
The Property is the primary criteria. What is the AS IS Value of the property. Is the Property income producing and can the income from the property cover the mortgage payments. Conventional lenders focus on credit, income and experience, but the private lender is primarily focused on the collateral.
As a rule of thumb, income producing property will have a maximum loan to value of 65%. Non Income producing properties will have a maximum loan to value of 55%. But there are other aspects of the property that is important to the Private Money Mortgage Lender. These would include, location, type of property, location, condition, location and marketability to name a few.
Location
What state the property is located in is very important. As these are private individuals the proximity of the property to them is important. Most private lenders will only lend locally, or sometimes will have different terms locally and be more conservative when the property is in a different state or region.
Property Type
Usually the highest loan to value is given to residential or residential based properties, like multi-family and mixed use properties. Office Buildings and Retail are next in the ladder of being more secure and less risk. The highest risk property types are special purpose properties like Movie Theaters, Churches, etc. The greater the risk, the lower the loan amount.
Location
In addition to what state the collateral is located in, most lenders prefer urban and suburban locations as they are more easily sold. In areas the number of people in a MSA is low, there are fewer potential buyers, especially for unique property types. That is why lenders sometimes avoid rural areas completely.
Condition
This should go without mention, but many borrowers do not understand that if a property is in poor condition it is harder to sell at market price and it shows lack of pride in ownership. This may be an indication of unseen problems.
Location
Location, Location, Location!!!
The where the property is affects marketability, value, environmental and other risk factors that will always be considered as lending risk. This affects, rate, loan amount and even whether the loan will be even offered.
Marketability
How long does a property take to sell? That is key for the property owner and lender. Ultimately the Private Money Mortgage Lender is concerned that if they have to foreclose on a loan it will be on a property that can be easily sold to recoup their investment. This is partially reflected in the value, but also relative to the risk of time the Private Lender will consider.
Finally, all factors considered The Private Money Mortgage offer financing for properties that generally would not qualify for conventional financing.
