7 Reasons Why You Should Get Private Lenders For Real Estate

private lenders for real estate home loans property financing

Are you buying your first piece of real estate or are you a long-time investor? In either case, you're in good company if you're considering another purchase. In fact, an estimated 97 percent of real estate investors worldwide plan to increase their investment within the next year and a half.

But getting financing for real estate investments doesn't always come easy. Unless you have a lot of cash on hand and can meet extensive credit requirements, traditional banks often turn you down.

But all's not lost. You have the option of using private lenders for real estate to have an easier time getting financing for your next property.

Read on for seven reasons why you should consider private lenders for your next real estate investment.


1. You Can Benefit From More Lenient Approval Requirements

When you seek a traditional bank mortgage for an investment property, lenders tend to have strict requirements. You often need to have a sizable down payment and great credit score. This especially makes things harder for new real estate investors.

Using private money lenders takes away a lot of this stress. These lenders often place less weight on your income and credit score. Instead, the property's value and any equity play the most role. So, if you've got a poor credit history or shaky employment history, using a hard money lender may appeal to you.


2. You Can Get the Loan Faster

Going through a regular bank loan process takes a lot of time and effort. Between completing paperwork, submitting documents, and waiting for the bank, the process can drag out to a month or two.

Using a private lender can allow you to get your loan in as few as one or two weeks. In some cases, the approval can happen within just days! Using a private lender loan can help you secure your dream property faster and reduce the risk of losing it to another buyer.


3. This Type of Loan Can Help You Look Better to Sellers

Sellers tend to give more weight to buyers with private money loans than traditional bank loans. After all, such lending is more secure and comes with fewer hurdles than traditional mortgages.

So, if the property you want to buy has more than one offer, you can stand out when you use a hard money lender. The security of this type of loan increases your chances of making a deal.


4. You Can Get a Better Deal on the Property

With traditional bank loans, the closing process can draw out for a month or even longer. When a seller wants to get rid of the property as soon as possible, this can frustrate them.

When you choose private lending loans, the closing process happens much more quickly. This can encourage the seller to accept a lower price on the property since they'll have to wait a shorter time to finalize the sale. So, you can end up saving a good chunk of money with this non-traditional loan!


5. The Private Lender Can Offer Helpful Real Estate Advice

When you work with a traditional lender, they mainly just help you through the loan application process. You usually won't get advice about whether the real estate investment makes sense or if there are red flags to know about.

A private money lender, however, will work with you as a partner for the investment. It's in this person's best interest to help you make a good decision. After all, missed payments or unseen defects with the property could ruin the project for them.

So, they can provide insight about a particular property so that you know whether to take it or move on. They can also suggest any work that would need to be done on the property so that it is marketable to rent out.


6. You Can Begin Investing With Little Cash of Your Own

If you're a new investor, traditional lenders often want you to put down at least 20 percent for the down payment on a property. If they do allow less, you can expect worse loan terms like higher interest rates.

A private lender, though, may consider letting you finance 100 percent of the price of the property. Of course, there may be origination fees and other costs involved with the loan, but you can always negotiate these with the hard money lender.

So, this non-traditional loan option can be great for dipping your feet into real estate investment.


7. You May Be Able to Get a Higher Loan Amount

Getting a high enough loan for an investment property can become challenging when you work with regular banks and lenders. This especially can cause problems if you have a high debt load and have taken out mortgages already on properties like your personal residence.

As long as the property you want to finance has an appropriate loan-to-value ratio, a private money lender may look past your debt and offer you the loan amount you need for the property. They can also help you with other options like a cash-out refinance loan when you already have equity from existing properties and can use it to increase the amount of financing.


Consider Private Lenders for Real Estate

Now you have seven good reasons why private lenders for real estate are a good choice for your next investment. So, if the option sounds right for you, do some preparation to ensure you get approval when you find that next dream property.

It also helps to know a few drawbacks to consider with this financing option. For example, you may sometimes pay a higher interest rate and an origination fee. You also risk losing the property if you can't pay the loan back within the short term allowed in your loan terms.

Real estate can make you some real money. Be sure to check out our other posts about real estate to get more investment tips.

Frugal Finance: New Articles For Fiscal Fitness