When to Go For a Private Money Loan

Picture this. You’ve found the property that’s going to launch your real estate empire. It’s in a great neighborhood and the seller’s prepared to let it go at a discount — with just a few adjustments, you’re convinced that this house will turn a tidy profit for you.

But there’s just one problem:

You need financing. And you’re not convinced that the bank is prepared to give you an investment loan.

A private money loan is an alternative financing arrangement where funds are provided by private individuals. However, you must be careful and check if the loan will be feasible for you or not with the help of hard money loan calculator. Keep reading to see our list of common situations where private money loans for real estate just might make sense.

1. You Don’t Think You’ll Qualify for a Traditional Mortgage

Banks are subject to all sorts of rules and regulations around lending money. If your finances are less-than-stellar or your credit score is too low, conventional lenders might be reluctant to finance your real estate purchase.

Private lenders don’t have to follow traditional finance rules. And unlike the bank, private individuals that loan money can finance people who aren’t conventional mortgage candidates. For investors like you, this flexibility could be the difference between purchasing the property and being forced to let it sit.

2. You Need to Close Fast

If you’ve spent any time in the post-pandemic real estate market, then you know that buying a house these days is like competing in the Hunger Games. People are routinely competing with dozens of other buyers and folks are waiving home inspections in the hopes of closing quickly.

The bank’s underwriting and approval process can take weeks to go through. In that time, your dream investment property could be taken off the market. Meanwhile, the best private lenders will often be able to approve financing within days.

Simply because time is often of the essence in real estate, this speed advantage can’t be overlooked.

3. You Need a Lot of Money

In 2021, home prices shot up by 19.8 percent. As such, it’s possible for that fantastic property to be priced just a little bit outside of your mortgage limit.

Because lenders are focused on the value of the property as opposed to your personal purchasing power, a private money loan can be used to supplement the funding you already have. In a market where people are routinely paying more for houses, that extra bit of cash can put your bid over the top.

4. You’re Buying an Unconventional Property

Sometimes the issue for conventional lenders isn’t your borrowing limits. It’s the fact that the property has no kitchen, no bathrooms, and no roof. In other words, it’s unlivable and uninsurable.

Private money loans are often very investor-friendly in this regard. Check out trinitymortgagefund.com to better understand how lenders might structure a private money loan.

Is a Private Money Loan Right for You?

When the bank is waffling and the seller is getting antsy, a private money loan can ensure the deal goes through. However, because these loans are slightly higher risk, you will have to vet potential lenders while keeping an eye on private money loan rates. That being said, if any of the four situations we’ve just listed sound familiar, private money loans can give you fast access to the funding you need.

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