Private Money Lenders for Real Estate

Scholasticus K Jan 6, 2019
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The economic recession put the real estate market in a considerable amount of turmoil. Private money lenders have, however, revived the market after a considerable credit crunch.
The lending sectors can be broadly divided into two parts: public and private. Private lenders are typically investors who lend out money for profit. As mentioned, the recession has left destructed credit reports in its wake, and the best option that people can avail in such a scenario is surely the loans offered by them.

Private Loans

Public lenders include prominent banks, lending institutions, and recognized financial institutions. Private money lenders, on the other hand, are people who lend as investment, in order to enjoy the returns of the interest rate or APR. The differences between the two are explained further.
  • The qualifying terms and conditions that are levied by public lenders are strict, and it is difficult to get a loan without a very good credit report. Private ones give loans, irrespective of the credit report and history.
  • Private lenders levy a mammoth rate of interest, while public ones issue a humble and subtle rate of interest.
  • Public lenders offer only secured loans, compared to loans of private lenders that are secured, and unsecured.
  • The interest rates on public loans are low and reasonable. The rate of interest on private ones is high and sometimes exorbitant.
  • Some public lenders give loans, generated by the Federal government, which is not the case with private lenders.

An Option to Consider

In the times of the economic recession (2007 - 2009), lenders, especially the public ones, suffered many losses as a result of consistent defaults and foreclosures. As the recessionary cycle is retreating, people are ready to once again take up loans.
However, lenders, except private ones, have not recovered properly from the shock of the recession. The second problem is that the credit ratings and score of people have dwindled during the time of recession, due to which they do not approve one.
Thus, the best option that can be used by people to avail real estate financing is loans from private lenders. These are principally used to purchase real estate, and then the same estate is pledged as collateral. These are often referred to as home or mortgage loans.
However, there are some other types of loans that can be granted by such lenders. These include second mortgage, debt consolidation, and home equity loans. In fact, they may also offer home improvement loans.
The common characteristics of all such private loans are the same. They are long term, have a relatively high rate of interest, and lastly, they are secured to the equity of the real estate. The primary advantage of borrowing one is that it will get approved quickly, as the approval conditions are not very strict.
It is of essence that when you borrow from private lenders, you calculate the prepayment and installments of the loan, as defaults and late payments will get you into a very deep trouble.