Your credit score shouldn’t be the only thing standing between you and a home. While a bad credit score might make getting a loan impossible, it doesn’t mean you have to say goodbye to your dreams of homeownership.
Nearly one-third of Americans have a bad credit score, meaning one in three people can’t get a bank loan to help them buy a house. But without a bank loan, it is virtually impossible to save the cash to buy a home up front.
That’s why so many potential homeowners choose to work with a private money lender. With private lending, they can finally get the home their family deserves.
If you’re considering using a private money lender to finance buying your home, read on. We’ll break down the process and show you how they can help you purchase a house you can afford.
What is a Private Money Lender?
A private money lender is someone, whether an individual or company, who is willing to give loans. They generally lend to people who can’t get a loan through more traditional routes like banks.
The money that they lend comes from their own private wealth, or from investors.
Banks won’t lend to people who have bad credit scores because of the risk that they won’t be paid back. Banks tend to play it safe with their lending. Plus, they have so many applicants that they don’t need to loan to riskier borrowers to drum up enough business.
But the people who banks won’t lend to still need loans. That’s where private money lenders come in.
How Are These Loans Different?
These lenders are not the same as banks, and it is important to understand the difference. They often get a bad rap, but in reality, there are a lot of upsides to hard money loans. They are different from bank loans, not necessarily better or worse.
The main three differences come with the interest rates, the length of the loan, and how easy it is to get approved.
Interest rates for hard money loans are going to be between 8% and 12%. With a hard money loan, you pay back the original amount loaned, called the principal, plus the interest. The interest is what it cost you to borrow the money. However, unlike traditional bank loans, you don’t pay back principal and interest in your monthly payment.
Most hard money loans have interest only payments. This means that you would be paying the cost to borrower the money on a monthly basis and not paying any of the principle. The principal is due in the form of a balloon payment. Having interest only payments allows your month payment to be manageable.
Shorter Repayment Terms
Since banks lend to so many borrowers, they can spread their repayment plans over very long periods, 15 to 30 years, and still make a profit.
A private money lender doesn’t have the same flexibility. Their investors want to see returns more quickly. This means the loans tend to be more short term, 3 to 5 years. But this is also useful for borrowers, who don’t need to commit to long repayment terms and can change their plan once their credit score improves.
Easier to Get Approved
Banks also tend to have much more strict approval guidelines when it comes to choosing who to provide loans to. Private investors, on the other hand, are much more flexible.
They don’t ask for nearly as much paperwork and documentation. This also means that you can get the loan much faster. If you need cash quick, private money lenders have got you covered.
Buying a House with a Private Money Loan
Now that you understand private money lending and how these loans are different from traditional bank loans, you can make an informed decision. Buying a home is always a big commitment. You need to be sure that you are ready and won’t fall into common private money home buying mistakes.
If you are ready to use a private money loan to purchase a home, the good news is that it is a relatively easy process. ARC Capital can help you find the plan you need for your unique situation.
We will go through your financial situation with you, evaluate the home you are planning to buy, and what sort of loan plan you need and will qualify for.
For example, some buyers need what is called a “bridge loan.” This is often used when you are planning to buy a new home before selling your last one, and you pay the loan off once your last one sells. This is different from “equity loans” or “mortgage refinancing” which can help you hold on to your current home. Your broker will be able to explain the differences and help you decide what is best for you.
Once we decide on a loan program to fit your needs, we will match you with an investor that will fit their needs. This way it is a win-win situation for all parties involved. ARC Capital focuses on building a relationship between the borrower and lender and examining the whole picture. They’ll understand your situation is unique, and build the loan plan accordingly.
The lender will provide the money, and then you can buy your new home. You just have to follow the loan repayment plan that was agreed on by you and the lender.
With private money lending, your credit score won’t stop you from getting your new home. Private money lenders aren’t banks, meaning they have more flexibility to provide the loan you need.
Before making any big decision, you need to understand your own finances and goals. ARC Capital can help you determine the right plan for you to ensure that you are only taking on what you can handle.
Get an evaluation today to see how ARC Capital can help you buy your next home.