So, you need to make a new real estate acquisition. Whether it’s a house you plan on fixing and flipping in order to turn a profit, or an apartment complex you want to turn into a long-term investment, you need to get a loan in order to close the deal. If you’re debating between hard money and private lenders, though, it’s important to understand the difference before you sign on the dotted line. Especially if you’re not entirely sure what the benefits are for using one option over the other.
Banks have loan officers who will evaluate a candidate based on their credit history, their current worth, income, and similar factors. Banks will often have specific terms for their loans, though, and those terms may not be open to negotiation. Hard money lenders, by contrast, are organized money lenders that are not banks, but which still operate as loan companies. Hard money lenders are more “mainstream” in that they have certain criteria for lending money, and their terms are laid out clearly. They often use many of the same criteria for deciding who gets a loan as a bank, but they often consider clients that a bank may have turned down, or projects which fall outside the scope of what a bank is comfortable lending money for.
Private lenders, on the other hand, are just private citizens (or groups of them) who offer to loan you the money based on their own terms. A private loan might come from a friend, a business, a family member, or even from someone who sees your project as an investment from which they hope to reap a reasonable return. Unlike banks or hard money lenders, the terms laid out for a private money loan need to be worked out explicitly between you and whoever is lending you the money for your project.
Each option has its advantages and disadvantages. Private loans are more flexible, for instance, and they can often be much more flexible for the borrower. Additionally, private loans may be available even if a bank or hard money lender won’t give you a loan because of your credit history (or lack thereof), or because the project isn’t deemed a solid enough investment for a business to risk its capital on. Not only that, but private loans are much more negotiable, and the time on the loan may be far shorter than on a hard money loan, which is ideal for those looking for short-term projects (such as buying, then flipping, a home). This is especially true if you are looking for lenders who will offer you generous terms, instead of ones you might be hard-pressed to actually meet.
Lastly, in the age of the Internet, it’s easier than ever before to find private loans that suit you, your project, and your budget
Hard money lenders may have more hoops to jump through, and they can take a lot longer to close, payday loans Willoughby but they’re accessible, accountable, and their dealings are backed by their business licensing. This makes them a safe option for those looking for mainstream funding.
Which option you take will depend entirely on your situation, and what is good for you. Borrowers should always evaluate all the potential options they have on the table.
When it comes to getting a loan, especially a loan for something big like a piece of real estate, most people turn either to banks, or to hard money lenders
Center Street Lending can offer information about our lending services, and how we can help fund your next fix and flip. Simply contact us today!