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.

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As a Real Estate Investor who focuses on residential 1 to 4 unit non owner occupied properties you would know there are three major investment strategies. In the past most investors led by Realtors often focused solely on the buy and hold strategy. This is still a great strategy today. It is the best option for people who are looking for a lasting long term income, even retirement income and or to leave a legacy for their family. Personally, the buy and hold strategy is a major part of my wealth building goals.

But the program I am most excited about is fix and flip investing. This strategy requires you to buy property at a low price, renovate and sell the property for a great profit. By only doing three or four good transactions a year you can make one hundred thousand dollars or more annually. One of the most important elements of making a great living investing in properties that need to be renovated is to have adequate and readily available funding.

There are no options for conventional rehab financing for borrowers looking to finance the purchase and renovation of investment properties. Frankly banks and other conventional sources are missing this boat. That leaves the bulk of this funding to Private Money or Hard Money Lenders. Private Money Lenders can be individuals, small funds or large institutional funds that focus on funding the purchase rehab transactions.

Quite often Private Money Lenders are Asset Based Lenders whose underwriting criteria focus on the value of the property and the experience of the investor. When a Private Lender looks at the value of property they will typically lend a percentage of the “AS IS Value” (AIV) for the purchase and a percentage of the “After Repair Value” (ARV) for the renovation of the property. At one time there pretty uniform lending criteria, but today the amount of money these Hard and Private Money Lenders are willing to lend vary greatly. You can expect terms as low as 65% of AS Is Value or 70% of Purchase Price to as high as 100% of Purchase Price. Pretty standard in the marketplace is 80% of Purchase Price.
Likewise, these funds will lend up to 100% of funds needed to rehab a property limited by the After Rehab Value. Typical maximum ARV limits range from 65% to 75%.

When choosing a lender (or qualifying for a fix and flip loan) there are other important guidelines to be aware of.
To name a few important guidelines you need to know there is:
1) Experience – How projects has the investor successfully completed and how many have been completed recently.
2) Credit – The investors Credit Score and Credit Profile.
3) Financial Strength – How much money does the investor have and how much will they have as a financial reserve.
4) Cash Flow – Will the investor have the ability to make mortgage payments.
5) Character – quite often private lenders search the public records to ensure they are dealing with quality people they are investing there private and often personal money in.

Remember when you are a fix and flip investor there can be great financial reward. There can also be great risk. The purchase rehab private money lender is your partner. They will share the reward and to a greater extent they share in the risks. These Hard Money Lenders are investing in you the fix and flip investor. They are not just making a loan.

FBC Funding is a nationwide financing broker for fix and flip or purchase rehab funding. We have multiple lenders with varying guidelines to help novice and experienced investors meet their financing goals.

Go Here to review our programs.

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