Private money refers to money obtained from sources other than traditional lenders. Funding sources can include family, friends, investors or funding groups. Also referred to as "hard money", private money can be used to fund investments such as real estate or start-up companies.
Private money lending is an excellent option for individuals with less than perfect credit. With today's credit crisis it has become increasingly difficult to obtain loans from banks. Even people with high FICO scores are finding they can no longer walk into the bank and obtain a mortgage loan. For those with a poor credit history, the chance of obtaining traditional financing is next to none.
When private money is used to purchase real estate, closing can occur within ten days. Banks typically take up to 90 days to fund a conventional mortgage loan. Deals can be expedited because funding sources aren't interested in the borrower's financial status. Instead they look at the appraised value of the property.
Anyone who has obtained a mortgage note understands the agonizing process and under-the-microscope procedures. Borrowers must present financial documents, tax returns and obtain a property appraisal. Private money lenders can make a decision in days or even hours; allowing the borrower to obtain funding and move forward with the deal.
This is an enormous benefit for borrower's purchasing property as real estate investments. Borrower's can buy houses, make repairs and resell the property in the time it takes for traditional lenders to approve the loan.
Finding private money lenders isn't as difficult as one might think. Every state has private funding sources that are eager and willing to lend money if the right opportunity comes along. Some private lenders advertise in newspapers and investment forums. Others work directly with realtors and escrow officers.
If you're worried that private money transactions aren't legal, think again. Funding sources are required to comply with state and federal usury laws. Usury laws regulate the amount of interest which can be charged by banks, lending institutions and private lenders. Some states limit the number of loans private lenders can make. For instance, in New York private lenders are limited to providing five loans before being required to be a licensed lender.
One of the best resources for learning more about creative financing and obtaining private money is CREOnline.com. Creative Real Estate Online offers an abundance of information for funding deals that many banks won't touch.
Additionally, our private money article library is packed with information for investors, home buyers, entrepreneurs and anyone interested in putting extra cash in their pocket.