Private mortgage lenders are more common today the reason being that it is more difficult now to obtain a mortgage loan and purchase real estate the conventional way than before.
Although real estate was once considered by banks and mortgage companies as a extremely profitable enterprise due to the fact that the property valuations were always going up, now these same banks and mortgage companies are not even providing mortgages on these properties any more. The paradox is real estate mortgages are much more secure than a lot of other loans that the same banks are still doing.
Just what comes about when you find a great real estate deal that you simply can not pass up?
First you find somebody or company who has available cash they want to invest in something secure offering them the opportunity to invest their money on the property that you found. Of course there has to be some return on investment for them. This is what Private mortgage lenders are. They give you money to buy real estate for a good return their money.
Private Money Lenders can be individuals who have access to cash reserve in their bank accounts (making 0-5% interest rate for example); men and women who saved money in the form of a CD (making (0-5% interest and locked for 1-5 years); business owners whose business yields more funds than they need and would not mind investing that money for a good return; folks who saved money in a retirement account and want a secure return on their money not taking a risk with the stock market. Those that can lend money to others for the purpose of purchasing real estate are private mortgage lenders.
Exactly how do you find Private mortgage lenders? A lot of times, these people are your normal people that you deal with everyday, and you wouldn’t know until you start asking or providing them an opportunity for a secure return on their investment. Word of mouth marketing that you are offering this opportunity and you’ll be astonished who comes forward and tell you that they are interested. Research the internet for private mortgage lenders.
Now how do Private Money Lenders make it through this tight real estate market?
- Real estate private money funding allows them to earn a fixed private lending market rate typically from 8 – 15% on their money, that’s a decent return compared to the 0 – 5% of the banks
- Their money is collateralized by a lien on the property that the owner is buying, and the property is their fall back in case of default: their money protection is physical and cannot escape like in a stock market loss
- The owner is typically buying the property at a discount versus the market, so the private lender has an equity buffer that allows them to return at least their private money in case of liquidation of the property
- The owner agrees with the private lender to a mutual beneficial interest rate and term of the note for the borrowed funds
- The owner adds the name of the private lender to the property insurance so the private money lender gets his money back from the insurance company in case of a natural disaster or fire hazard
- The title of the property is encumbered with the lien of the private money lender, so the owner cannot sell or refinance their property without paying off the agreed upon money back to the private money lender.
– The closing takes place at a title company so you have a professional closing just like any bank real estate mortgage transaction.
In conclusion the benefits are plentiful for the private mortgage lender. Private mortgage money can be used for Single family homes, land, investment properties (residential, apartments,).
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