Real estate investing is no longer just about buying your dream home. For many people, it’s a way to generate income.
Real estate investment can be extremely exciting and profitable. It’s also one of the oldest forms of investing.
Before stocks and bonds were traded, real estate investing was a way for people to grow their wealth.
But most people can’t afford to buy real estate on their own. They need help.
Banks aren’t always the best choice available. Sometimes private money lenders are. Keep reading to learn why.
Money is Given to the Borrower More Quickly
When you’re in the market to buy a house, you have to act quickly. If you go the traditional route and look to a bank, that process can be very slow.
A bank will make you go through a huge underwriting process. It’s usually rather lengthy.
There are lots of documents to fill out, forms to sign, and paperwork to produce, all of which takes time and patience. As the loan progresses, you have to wait for the underwriter at various times, usually for days at a time, and you will often have to produce more documentation for things the underwriter has questions about.
Private money lenders are able to be much more flexible when it comes to buying a home.
Since they tend to have the same investing principles as you do, they can make quicker decisions without asking for more and more paperwork. This allows you access to the money you need much more quickly.
As a result, you’re able to start working on fixing up your investment much more quickly. If you plan on selling it as soon as the work is completed, you can see your profits sooner and buy the next property faster.
You’re More Able to Buy a “Riskier” Investment
Banks don’t like taking risks. Especially when it comes to homes.
If you’re in the market for a fixer-upper, one that needs a lot of work, the bank will most likely turn you down for a loan. They consider it too much of a risk even though the value is expected to go up after you have done work on it.
And if that property has been vandalized or seriously damaged, the bank will flat out turn you down. There isn’t a lot of wiggle room when it comes to financing a loan with a bank.
They have very specific guidelines, including requirements about the condition of the property.
Private money lenders, however, see the same potential you do with your property.
They know that a house that can be purchased cheaply can also be fixed at a reasonable price. They also understand that same fixer-upper can then be resold at a decent profit.
This means that the collateral for their loan is increasing in value as you improve it, making it a good investment to them rather than a huge risk.
Your FICO Score Counts Less
Sometimes in life, things happen and your FICO score takes a hit. Sometimes that something is against your control.
Perhaps you lost a job and missed a few payments on your credit card. Other times, maybe it was your fault because you weren’t paying attention.
But just because your FICO score isn’t what you’d like it to be, doesn’t mean you’ll never get a loan. It will if you go to a bank. They only want to offer loans to people with little to no risk.
With private money lenders, your FICO score isn’t as important. Rather, they’ll use their investing experience to determine if you and the property you’re buying are a good credit risk.
Money lenders are far more willing to look at the full picture rather than just what they see on paper.
The Debt-to-Income Ratio is Less Strict
Traditional lenders don’t like your monthly debt payments to be higher than about 33% of your provable income. This can be very limiting, especially if you are self-employed or are starting a new venture like flipping homes.
With private money lenders, your debt-to-income ratio is far less strict. In most cases, private lenders don’t consider it an important part of your application.
That’s because they are more concerned about the property value and realize that sometimes you have a plan that will work even when the banks consider it to be too much of a risk.
That flexibility makes it far more likely for someone with a less than stellar financial history to be able to obtain a loan.
For those people looking to use property investment as a way to get back on their feet financially, private lenders offer a window of opportunity where others have shut their doors to them.
Before you decide to fix and flip a home with a private money lender, do your homework thoroughly. You want to do it properly and avoid making any costly mistakes.
When you’re ready to obtain a loan, we can help. Click here to fill out a form to help you get prequalified.