A private money loan is a financing solution for individuals and real estate investors seeking funding for non-owner-occupied properties. It’s intended for the short term and is ideal for acquiring investment properties that will be sold, rented out, or renovated.
Private money loans can be applied to many categories of real estate, including apartments, single-family residences, multi-family dwellings, commercial structures, industrial facilities, and vacant land.
Interest rates can vary depending on the lender. At West Forest Capital, our interest rates are anywhere from 10% to 13%. The loans typically span one to three years, with the potential for six-month extensions or longer, depending on the need.
Is a Private Money Loan the Same as a Hard Money Loan?
When is a Private Money Loan Used?
Private money loans can be used by real estate investors or individuals for:
- Acquiring and renovating properties that traditional banks won’t finance (due to your credit or the property’s condition)
- Quickly refinancing an existing mortgage on a property that is approaching its maturity date
- Obtaining almost immediate cash-out refinancing by using an already-owned property collateral
- Financing real estate transactions that require a fast closing, which traditional banks might not be able to accommodate
- Acquiring a property under the name of a Limited Liability Company (LLC)
Since traditional banks frequently do not extend loans to LLCs, borrowers interested in owning properties under this structure can choose a private money loan as an alternative.
Private money loans can be used for a variety of property types, including:
- Condos
- Single-family 1-4
- Duplex
- Triplex
- Quadplex
- Mixed-Use
- Multi-Family
- Commercial
- Industrial
Private money loans are an important resource in the real estate investing industry, particularly for those looking to acquire and develop commercial properties or rental properties. These loans are a practical solution for financing construction projects, enabling investors to secure the necessary funds quickly.
How is a Private Money Loan Different From a Traditional Bank Loan?
A private money loan is different from a traditional bank loan in some key ways. First, a private money loan has a faster approval process, with most loans being approved within five days or less. Banks often take several weeks or even months to review an application and in some cases, the loans are not approved. Private money loans also have much more flexible loan terms and repayment schedules that can be applied based on the needs of each individual application. Traditional bank loans tend to have more standard terms and typically want to set the loan terms to several years, rather than a short period of time.
Lastly, since private money loans lend on the asset rather than the borrower’s personal credit history or income, there’s a greater chance someone with less than ideal credit can be approved for a loan. Overall, the process of applying for a private money loan is much faster and simpler compared to a traditional bank loan.
States That We Finance Loans:
West Forest Capital lends in the following States:
- New York
- New Jersey
- Connecticut
- Massachusetts
- Rhode Island
- New Hampshire
- Pennsylvania
- Georgia
- Florida
Benefits of a Private Money Loan
The benefits of private money loans include:
Rapid Transaction Speed: The application process for a private money loan is significantly faster than that of traditional lenders, with most loans being funded within five days.
Flexibility: Private money loans are typically funded by private lenders, making it possible for each loan application to be individually evaluated, a level of flexibility that traditional lenders typically cannot match.
Accessible Approval: Even with a low credit score or a history of foreclosure, you still might qualify for a private money loan.
Transparent Process: The funding process is transparent and straightforward, free from hidden costs or fees.
Responsive Communication: The West Forest Capital team is diligent, quick to respond, and available throughout the week to provide assistance and address your concerns.
How It Works
Private money loans work by lending on the asset (which is the value of the property or land). If the borrower is unable to repay the loan, the asset will be taken back and sold. As a result, private money loans do not have requirements for a high credit score or income. While it might be preferred that fund borrowers have a 600+ FICO score, projects can still be funded if a score is below that range.
Private money loans have much more flexible terms and faster approval processes than traditional banks, which lend on the borrower’s credit and/or income.
What is Needed for Private Money Loans?
As mentioned, there are no credit score or income requirements with private money loans. This makes it possible for more real estate investors to obtain funding for their rehab projects. The qualifications from private money lenders to apply for a loan typically include:
Down Payment: One of the main factors in obtaining the loan is meeting the down payment requirement, which services as collateral for your loan. The exact down payment amount can range from 20% to 40% depending on the specific type of property. These down payments are calculated based on the Loan-To-Value (LTV) ratio of the property. For example, if you want to purchase a residential property for $300K and the LTV ratio offered is 70%, then you would be responsible for the $90K down payment.
Appraisal: This is ordered by West Forest Capital (the private money lender).
Insurance Policy: West Forest Capital should be the loss payee and additional insured.
Builder’s Risk Insurance: For extensive rehab projects.
Lender Title Insurance: West Forest Capital as the beneficiary.
Credit Score: While a FICO credit score of 600+ is preferred, it’s still possible for projects to be funded with a score below this amount.
Private Money Loans with West Forest Capital
West Forest Capital provides funds to real estate investors and others looking to finance non-owner-occupied real estate. We fund property types that include apartments, single-family, multi-family, commercial, industrial, and land.
We provide rehab funds, or full construction costs, as needed. We also provide fast closings, almost always less than 14 days, and often as quick as 3 to 5 days. We’ve even previously closed a brand new loan in one day. Our loans are 1-2 years in duration, and extensions can be provided for up to 6 months or longer on a case-by-case basis.
