Private money lending is a
non-institutionalized, short-term real estate funding opportunity that utilizes
the protective equity of the property as collateral for the loan.
There are many companies that
focus on providing loans that may not be offered by traditional lenders. This
means that their funds come from various sources for trust deed investments.
Funds are obtained from sources such as REITs, trusts, hedge funds, IRAs,
pension plans and etc.
Debtors who are unsuccessful
to qualify for bank loan standard have the option to go for private money
lending. Although an investor's income and credit background may be sufficient
according to the guidelines of traditional lending, the classification of a
trust deed loan as a subprime prevents the financial
institution from granting the bank loan. Therefore private lending
offers a reasonable and appealing solution with more lending choices.
Companies who take care of
trust deeds solicit, underwrite, process and fund private money lending.
Naturally you ought to be wise to select a company with a good reputation for
managing trust deeds, possibly suggested by other successful investors.
Not all creditors will give
the same services but all understand the complexities of creative financing and
transactions of trust deeds. Generally, lenders provide underwritten, direct
loans for the debtor. For that reason, they fund the loan internally after
personally examining the possible pitfalls instead of outsourcing to retrieve
details. Through this, the loan terms can be modified accordingly can be
grander quicker than traditional lending.
Private money lending firms
provide unique opportunities for investors. First, the loan is secured by a
trust deed on a real estate and then supported with the debtor's personal
guarantee. A Title Insurance Firm that is known with a sterling reputation is
responsible for insuring the trust deed. The borrower pays for any fees incurred
in the process of servicing the loan which includes the underwriting and
documenting and other processes.
The decision to fund the loan
is dependent on the property's market value. This is the first evaluation an
asset-dependent lender will make and if such requirement is met, then the debtor
is evaluated, his capacity to repay the loan and whether the project is a
viable one.
An officer of the trust deeds
firm will personally inspect the home prior to the final decision to grant the
loan. However, as an investor, it is a wise thing to do your due diligence and
check the property yourself to be able to assess if the appraisal made matches
yours. Appraisals and property values are typically verified by utilizing sales
analysis through interviews with real estate brokers who know the location.
Investors are guided through
each phase of the loan process. Every investor is given the details of the loan
summary which includes the borrower's information, property to be used as collateral
and terms of the loan. Private money lending is often the solution for an
average borrower and a good investment choice for big or small time investors,
which is another reason why investing in trust deeds is so smart for our time.
