While traditional forms of financing are always an option, private money loans are becoming increasingly popular. Alongside their fast turnaround times, they’re often more accessible to those with a less-than-ideal credit history. Private money loans aren’t the right choice for every borrower, but if you find yourself in any one of these four scenarios private money loans may be worth exploring.
When your credit score is less than stellar
As one of the toughest financial obstacles you can overcome, real estate investment calls for excellent credit scores. From a bank’s perspective, this makes perfect sense. They want to know that their loan will result in a repayment. A less-than-stellar credit score could act as a red flag that they won’t see their money again.
In contrast, private money lenders will look at your investment’s potential. If they see evidence that you can make it work, such as experience with real estate investing, they’ll agree to provide you with the financing you need.
When you are self-employed or have a hard time proving income
Although working as a self-employed person has plenty of benefits, it also comes with its disadvantages. Even if your credit score is excellent, large banks may hold back on lending to you. Why? Because they have no proof that your income is guaranteed. Additionally, if you work in the gig industry or on a flexible basis, you might struggle to demonstrate reliable income.
Private money loan lenders are investors who recognize that self-employment is often as reliable as a traditional job. If you have a longstanding history of working as a self-employed person, a private lender will lend to you.
When you need financing immediately
As a real estate investor, you may see the perfect investment opportunity, and your gut tells you that it won’t hang around for long. When that’s the case, you need rapid access to financing. Rather than dealing with the long waiting times that come with working with a bank, a private lender can seal the deal quickly.
Application-to-approval periods are sometimes as short as a couple of hours in the hard money industry. As long as you and your broker can provide the right documents immediately, you can access your investment funds promptly.
When you need cash to make an offer
Another issue that accompanies aiming for a highly-coveted investment opportunity is the seller wanting evidence that you can follow through with your offer. Even if it looks likely that you’ll get a traditional mortgage, they’ll want to know that you can cover the deposit. With a private money loan, you can demonstrate that you have the cash to back up the offer.
In addition, having cash instead of a traditional mortgage loan can help you seal the deal on an offer that the seller wouldn’t accept otherwise. Cash in hand allows you to be flexible and can entice a seller to sell to you, rather than the next investor.
If you find yourself in a scenario where a private money loan is preferable to traditional finance, First Capital Trust Deeds can help you explore your financing options.