The Pros And Cons Of Private Lending For Real Estate Projects
Private lending companies offer hard money loans, often referred to as private money loans. Homeowners can usually qualify for one of these loans if they want to purchase an asset. The most common way to find one of these lenders is to through a local real estate investment club. Home investors can usually secure these loans. However, not all homeowners are able to obtain funds with this methods. These are the pros and cons of private mortgage loans you need to know about.
A hard money loan is an option you should consider if you cannot qualify for a regular mortgage because of a poor credit score. Being self-employed, in debt or not being able to prove that you have a stable income can also make it difficult to get a traditional mortgage. If there is potential for profit in your real estate project, you should be able to get a hard money loan even if you have a poor credit score.
A personal loan will not be paid back over the next 30 years like a traditional mortgage. In most cases, private lenders will expect you to pay the loan back within six months to a year. These lenders usually cannot offer long-term loans like a mortgage provider does and need to generate a profit on their loans very quickly. If you are looking at a home that is going to need some renovations, you might not be able to qualify for a traditional mortgage, even if you can prove that you have a good income and also have a good credit score. Private money is an option you should consider if you are in this situation. You can go to a non-traditional lender to finance your project, do some renovations and sell the house for a profit.
Interest rates are one of the main drawbacks of personal mortgages. The rates offered by private lenders are a lot higher than traditional loans. Mortgage rates can double and reach 12 to 20% per year. Private lenders do not require you to have a good credit score, which means the rates offered will be higher. The property you invest in will be used to secure the loan and private lenders will not take your credit score in consideration.
You can usually get approved for a private loan in a few weeks if you own a home. It could take you more than a month to get approved for a traditional mortgage. In some cases, getting access to funding quickly is more important than saving on interest rates. Applying for a conventional mortgage means you will have to go through a lengthy application process and wait for the funds to become available.
If you are a homeowner and need to make some renovations to boost the value of your property, think about applying for a personal loan. You will be able to improve the value of your home, sell it and pay the loan back quickly. You will be able to finance your real estate project even if you do not qualify for a conventional loan as long as you fully understand the pros and cons of private loans and make the best decision possible in function of your situation. For help regarding the San Antonio Real Estate Market please contact us.