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Private Money Fills a Niche in Mortgage Lending
Would you lend to a borrower in foreclosure? Or someone looking to buy a Older - Large
Commercial Building whose value couldn't accurately be determined with a standard
appraisal? How about refinancing someone's mortgage so the person can take out
hundreds of thousands of dollars in cash?
For "hard money" lenders, it's all in a day's work. These private individuals and small local
companies operate where even subprime lenders fear to tread, making loans to the
desperate and needy the same way regular banks and brokers service traditional
customers. They're harder to find than mainstream lenders and they don't come cheap.
But they can help hard-luck borrowers make bad situations better -- and sometimes,
they're a consumer's only choice.
"There are private investors who, if the interest rate is high enough and the perceived risk
is low enough, they will put the money up.
Brokers and other intermediaries who arrange hard money -- or private money -- loans "go
to people who have money to lend and they match them up with people who can't get
money any other way.
Commercial Property buying the 'hard' way
If that sounds a little like how the Mob works, don't worry. Hard money lenders aren't loan
sharks who break borrowers' kneecaps when they can't repay. At the same time, these
lenders aren't your Granny Sue. They charge interest rates and fees that would make
conventional borrowers cringe and often base lending decisions on whether there will be
enough equity in their subject homes that they can foreclose and still turn a profit. But
private money fills a niche in mortgage lending, helping consumers who have specialized
needs or too many credit problems to get conventional financing.
"It's across the board," says, a prominent private money investor in Newport Beach,
California. "You'll see anything from a $150,000 foreclosure to a Two million-dollar loan,
where somebody just needs so much cash out and can't verify their income to make it
worthwhile for a traditional lender to look at."
For instance, a local Mortgage Broker said, one of their hard money capital partners
recently did a large bridge loan for an investor purchasing a office building, situated on a
very large parcel of land, near the Dana Point Harbor, Dana Point, California. Regular
lenders balk at such deals because they don't like financing properties in remote locations
or those that aren't of standard frame, concrete block or other traditional-type
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construction. Investor, buyers sometimes use hard money loans, too. That's because
conventional lenders get antsy about mortgages for properties that derive a substantial
portion of their
value from the land rather than the commercial building and the income it produces .
Buyers of commercial properties and those who already own such properties and want to
cash out large amounts of their equity via refinance loans also turn to private money. So
do real estate investors. These buyers purchase properties on the cheap, fix them up and
sell them for profit. They use private loans because the loans come with less red tape and
restrictions than bank loans.
Borrowers facing foreclosure make up the last major category of hard money customers.
When someone misses a mortgage payment, that person usually has some leeway to
bring the loan current. But once a 30-day delinquency turns into pre-foreclosure or a 120-
day or 180-day one, the lender will usually start the foreclosure process. At that point, the
borrower is so far behind that even subprime lenders are reluctant to come in, refinance
the loan and start the clock ticking again.
A hard money lender, on the other hand, may be willing to give that person a new loan.
The customer can use it to pay off the original lender, gaining enough time to sell the
property and find a new place to live. Borrowers who miss payments because of
temporary problems, such as a job loss, can benefit, too. They can use the breathing room
a hard money loan provides to rebuild their credit. By making payments on time for a year
or two, they'll lay the groundwork for a future refinance into a more favorable loan.
"These are temporary fix loans. That's all they are -- to help people get out of a bad
If you find one -- be prepared to pay
That said, hard money borrowers face a steep hill to climb. For starters, hard money
lenders can be difficult to find. Most operate only within limited geographical areas
because they like to see the properties they're lending against personally and know the
area around them. Borrowers can try calling around to various mortgage brokers, some of
whom have private investors who do hard money loans or know of people who do. Or,
they can check their local newspaper's classified advertisement section. Many papers
have listings that read something like this: "Can't get a loan? Call Us. Private Money
Available. Opportunity Capital Available."
Customers who can find a hard money lender shouldn't expect to be offered grade-A
terms, though. Private money mortgages typically have rates well into the double-digits
and often come with several upfront points. People who don't own at least 30 percent or
40 percent of their properties probably won't even be able to get a loan. That's because
hard money lenders limit borrowers' loan-to-value ratios so they can at lease brake even if
they have to sell off their properties during a foreclosure. Consumers need to watch out
for "loan-to-own" predators, too. They structure hard money loans in such ways that
borrowers inevitably fail just so they can take possession of their properties and profit off
"It's kind of the same rules you get on any loan -- clearly understand what it is you're
getting into. Understand what the fees are and what the actual cost of the money is to
you," our Capital Partners' say. "Be smart."
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Despite the pitfalls, lenders say that hard money loans can provide borrowers a lifeline in
times of need. Consumers just need to make sure their loans will help get them out of
debt, not bury them even further.
"If a Commercial Property is worth $1,000,000, the loan-to-value on a hard money loan may
be 60 to 65 percent ( Larger LTV Ratios on a Case by Case Basis), so maybe $650,000
maximum on a first mortgage is loaned against the property" to pay off the old lender
who's preparing to foreclose. it does not mean that that customer can't take the property
and sell it tomorrow for $1,000,000 and reap the benefits of that additional $350,000," he
adds. "A person is better off paying 14 percent, or a higher rate than the normal rate of 7
or 10%, to keep the property rather than lose it. Or say you don't get $100,000 for it, you
get $90,000. Ninety is better than zero."
When you need fast hard money loan, you need a commercial real estate lender who can
and will respond within your pressing time frame. When you contact the Papke Group, you
get immediate response that includes reviewing and analyzing your hard money
commercial loan within 24 hours. We have closed loans – including complex loans -- in as
little at three working days.
PapkeGroup-Emerald Financial and its Capital Partners
an Equal Opportunity Lender.
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