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If you are having trouble obtaining financing for real estate from traditional sources like banks and credit unions, you can almost always find private investors to help you out. This is true whether you have good credit or not, and whether you are wanting to buy a home to live in, or an investment property. Capital is usually available—at a price—if you know where to look.
Hard Money Loans
A hard money loan is a privately financed mortgage on real estate, often for investment property. Terms may be the same as traditional mortgages, with the exception of the higher interest rate. While you might be able to find a hard money lender who will do a standard 30 year fixed mortgage, it is more common for loans financed with hard money to mature in a shorter time period.
Hard money loans may be amortized over 10, 15, 20, or 30 years, but can be due (balloon) in 6 months to 5 years. Since conventional lenders frequently won't do a home equity loan or refinance for 3 to 6 months after a home is purchased (called a seasoning period), hard money loans are sometimes used to purchase investment property with a 60 or 70% loan to value (LTV) ratio, and are refinanced conventionally in several months. This allows an investor to quickly close on multiple properties, giving time to refinance later at more competitive rates.
How to Find Hard Money Loans
Mortgage Brokers
Many mortgage brokers have investors who will underwrite hard money loans. If you go to a mortgage broker, expect to pay all the traditional closing costs and fees, such as points, appraisal fees, title and escrow fees, etc.
Private Investors
Some of these costs can be avoided if you can find a private investor to work with directly. While you will still have some costs, such as appraisals and inspections, your total of all fees will generally be lower without the middleman.
It can be difficult to find these investors if you are not a mortgage broker, because brokers are who investors go to to find borrowers. One way to find private investors willing to work with you directly is to advertise on Craig's List or your local newspaper's classified ad section, but be prepared for brokers to call in response to your ad.
Peer to Peer Lending
Friends and business associates are probably the lowest cost source of private money for real estate investments. You may be surprised how many people you know are in a position to invest in your real estate ideas if you can demonstrate your knowledge of the real esatate industry and the fundamentals of the deal you are proposing.
The safety of your friends' and associates' investment is alway paramount. You need to be able to show how safe their money is with you by giving them first trust deed position if at all possible.
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