Cons and Advantages of Private Home Loans

Private money loans are also known as hard money and come from private loan companies that offer loans to home buyers to purchase a specific asset. Typically, home buyers often find these lenders participating in a real estate investment club in their area. These loans are usually guaranteed by real estate investors. But sadly, not all homeowners will get funds from a private lender. These are the main pros and cons of private home loans.

This loan could be a great option for home buyers who cannot qualify for a traditional mortgage due to inaccurate credit or debt, or for freelancers who cannot always provide proof of a stable income. A debtor should remember that a person with a poor credit history can get a big money loan if the project shows earnings.

Personal loans are not repaid in 30 years like a traditional loan. A large number of private lenders expect the loan to be repaid in a very short time, such as six to twelve months. Lenders are often looking for a very quick return on their money and are generally unprepared to offer a multi-year loan like a typical mortgage company does. Homes that need additional renovations generally cannot qualify for conventional mortgages, no matter how better the borrower’s credit rating is. In those cases, private money can play a very important role. A non-traditional lender can step in and offer financing to get the home in marketable condition and then turn the home around.

A big downside to personal home loans is interest rates. Interest rates are much higher with a private money loan than with a conventional loan. Even mortgage rates are sometimes more than double, often between 12 and 20 percent per year. Basically, mortgage rates are very high because private lenders do not need exact credit. Funds from private lenders are generally secured by the property in question, so it is generally not very important to the lender whether the debtor has good credit or not.

If you are a homeowner that you think is a candidate for a personal loan, the approval procedure often takes just a couple of weeks, rather than 30 to 45 days for a conventional loan. For many borrowers, qualifying for a loan faster is a very good trade-off for higher interest rates. Generally, private lenders do not need a lengthy loan process like a conventional mortgage does.

If you have a house and you want to rehabilitate it, in addition to the fact that you feel that you could improve it enough to increase its value in a short time that would allow you to cancel a personal loan and replace it with a conventional sale, then applying for a private loan is a viable option. As long as you understand the caveats and complete your research, there is a chance to successfully secure a property without a conventional loan.

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