A discussion of the lending and borrowing elements that make a private money loan transaction successful. The article includes a lender and borrower's checklist of necessary procedures in a private money loan.
The lending and borrowing process of private money loans for real estate is relatively straightforward and simple; however there are certain guidelines and expectations on both the part of the lender and the borrower that renders a private money loan transaction as successful or detrimental.
The needs of the borrower and the criteria of the private lender determine the nature of the lending and borrowing process of the loan. These two elements must mesh together into the scheme of things in addition to the routine necessary paperwork requirements.
The borrower of a private loan should take a self-inventory to determine whether or not he/she meets the requirements for consideration by a private lender. In a typical private money loan transaction, there are considerations on the part of the borrower as well as the lender. It is a good idea to know the basic checklist before you get involved with the loan transaction.
The borrower's checklist should include the following:
*The type of real estate property for which you are seeking a private money loan. *Get an appraisal to determine the property value and loan-to-ratio percentage. *Assess your current financial situation, credit history, and debt ratio.
*Determine whether or not you meet the general criteria of the private lender you have chosen.
*Hire a property surveyor.
*Get an environmental assessment if necessary.
*Obtain title and hazard insurance.
*For income producing property, access the cash flow statements.
*For income producing property, obtain the rental agreements
*Devise a plan to satisfy the short-term private money loan.
*Appoint an attorney who is qualified to handle your real estate transaction and oversee the correct filing of necessary paperwork.
*Make sure you have the private lender's contact information for sending payments.
The lender's checklist includes the following:
* How the borrower intends to exit the short-term private money loan.
* All of the necessary documentation on the loan is signed and notarized.
* Make sure the original mortgage is in your hands.
* Make sure the property taxes are up-to-date.
* Make sure a there is a title insurance policy issued to you.
* The closing statement is received before the funds are issued. * Make sure your money is disbursed into an escrow account.
The lending and borrowing process for a private money loan will vary according to the type of property to which you are seeking financing. The checklist for a commercial property will be different from the checklist for a residential property. In general, for all types of real estate, you will need the basic necessary paperwork of the Promissory Note, Mortgage, Certificate of Insurance, and Disclosure Statement. However, using creative financing may require additional forms of paperwork for different types of transactions.
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