Private lenders are entities that usually issue short-term loans to real estate investors who make money by flipping houses. They also accommodate buy-and-hold investors of rental properties. The money obtained from these lenders can either be used to purchase properties or renovate them.
Private lenders are the alternative to banks which loan qualification standards are a little bit too hard to crack these days. If you can’t get approved by any bank or financial institution because of your less than impressive credit standing, then you can always turn to private lenders for help.
Private Lender Maximum Loan Amount
Private lenders come in all types, shapes, and forms. They may vary greatly when it comes to rates, terms, and guidelines for qualifying loans. They also follow their own way of computing for the total loan amount and the down payment on the property, if necessary.
Usually, private lenders only grant up 90% of the property’s market value. If the money will be used for renovating the property, then that value may go down to 80%. The basis is usually the fair market value of the property involved.
The 90% value is mainly applied to properties that are in good condition. The 80% value, on the other hand, is applied to distressed properties. The actual amount is determined by the expected value of the property after it has been rehabilitated. They also expect the borrower to shoulder the remaining 10% or 20% to purchase or improve the property.
Private Lender Interest Rates
Most private lenders usually follow the interest-only payment scheme. Here, the borrowers are only expected to pay the monthly interest throughout the agreed loan term and make the full payment only at the end. To protect their interests, many private lenders apply prepayment charges if the loan is paid off in full before it is due. Others simply won’t let you pay early.
The interest rates on the loans issued by private lenders may go anywhere from 7% to 13%. Plus they also charge lender fees, closing costs, and appraisal charges. As you can see, the interest rate is definitely higher than that of any bank. But then again, your monthly payment isn’t that high because you’re only required to pay the interest.
Are Private Lenders for You?
If you’re looking for a short-term loan and the bank can’t give you one, then the services of private lenders may seem attractive. It’s also recommended to buy-and-hold investors as it allows them to work up the funds or make money through rentals before selling the property at the end of the term.
At any time that you feel that conventional mortgage doesn’t work for you, try the services of private lenders. Their high approval rate and easy loan terms may just be the one that you need. If you want to get more information about this type of loan, simply get in touch with reputable private lenders Ontario and ask them all the questions that you want to be answered. They are the ones that are most equipped to enlighten you about this concept.