Why Private Lender Real Estate Financing is Better ThanConventional Mortgages
A discussion of seeking private lending versus a conventional mortgage and the advantages of using a private lending source.
In today's uncertain economic climate, financing a real estate venture through a private lender is considered a viable alternative to seeking a conventional mortgage through a commercial institution. With commercial lending institutions folding under the pressure of the Wall Street crunch, private lending is becoming the preferred alternative to financing real estate.
Obtaining financing from a private lender is beneficial to real estate investors who seek immediate financing to close a deal. This helps to avoid hassles that occur with financial documentation that is routinely required by conventional lenders. Private lending enables real property investors to potentially close a deal much faster without having to endure the "red tape" of a conventional mortgage lender.
A real estate mortgage through a private lender is a very secure way to borrow due to the fact that this type of loan represents a significant percentage of the appraised property value with a lower loan-to-value ratio than a traditonal mortgage lender. Additionally, the lender is able to make a quick decision that would otherwise take longer with a conventional institution, where it must be approved by a group of loan decision makers.
Fast Completion of Financing: Real estate financing via a private lender can potentially be completed within a week of the decision because the type of property being considered for financing is the primary factor in the decision instead of personal information pertaining to the borrower. When compared to a conventional mortgage lender, private lending criterion is more advantageous to the borrower because conventional mortgages require more details like the borrower's history, debt ratio, and overall financial situation.
No Current Financial Information: In some instances, it is necessary for the real estate investor to receive a decision immediately to avoid the loss of a potentially lucrative deal in a competitive marketplace. Using a private lender circumvents the requirement for personal financial information because the lender focuses on the value of the property being used for collateral. Obtaining funding from a conventional lending institution requires the borrower's personal information to be current. If the information is not current, the loan decision is delayed and inevitably, the borrower loses the deal.
No Credit and Debt Ratio: Conventional mortgage lenders focus on borrower credit and debt ratio as well as the type of property being financed. In this instance, the borrower may not be able to obtain credit or the type of property chosen does not represent the interests of the conventional mortgage lender. In this case, the private lender is the solution for the borrower as long as the property has a high value appraisal and produces sufficient cash flow to satisfy the loan.
Larger Loan Amount: Choosing to finance real estate through a private lender sometimes allows the borrower to receive a larger loan than one received through a conventional mortgage lender because the lender focuses on the appraisal. The conventional mortgage lender often poses penalties if the borrower acquires property at a discount to the appraisal. This means that the borrower must invest more of his/her own capital in the venture which would otherwise not be required with a private lending transaction.
Choosing to finance through a private lender is a great alternative to a conventional mortgage and offers more opportunity for creative financing for both the lender and the borrower and provides a win-win situation for both parties.
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ABOUT THE AUTHOR
I invite you to learn more about Private Money Lending and get my new FREE 20-page ebook titled "Discover the Secrets of How to Fund Your Real Estate Deals with Private Lenders!" by clicking here http://realestatewealthtoday.com/FREE-eBook.html . Mike Lautensack is a full-time real estate entrepreneur and creator of the Private Lending Presentation Kit. To learn more about this kit go to Private Lending Presentation Kit.