Private mortgages, also known as private money loans, are becoming increasingly popular among borrowers in need of short-term financial solutions. Private money is usually provided by individuals or non-institutional lenders who are willing to take on a higher level of risk in exchange for higher returns. In this blog post, we will discuss the top reasons why borrowers use private money as a short-term tool.
Reason #1: Tight Closings
In a hot real estate market, buyers need to be nimble and competitive to secure the property they desire. Traditional lenders may not be able to meet tight closing timelines, leaving buyers in a precarious situation. This is where private money comes in handy. Borrowers can use private money to quickly close a deal and then refinance with a traditional lender once they have more time on their side.
Reason #2: Property Flips
Real estate investors who purchase properties with the intent to renovate, increase their value, and then sell them quickly, often use private money to finance their projects. While private money loans may come with higher costs, investors know that they will only need the funds for a short period of time. This tool gives them the momentum and speed they need to quickly flip the property and make a profit.
Reason #3: Bridging a House Purchase and Sale
Bridging loans, also known as bridge financing, are used to provide temporary financing for a borrower who needs funds to purchase a new property before their existing property has been sold. Traditional banks may offer bridge financing at relatively low costs to borrowers, but some lenders do not provide this service. In situations like these, private money loans come in handy. Borrowers can access the money they need to close on their new home purchase and pay off the bridge loan once their existing home has been sold.
Summary
Private money loans are a valuable tool for borrowers who need short-term financing solutions. They are especially useful in tight closing situations, property flips, and bridging a house purchase and sale. While private money loans may come with higher costs, they can be a lifeline for borrowers who need to act quickly to secure their financial needs. If you are considering a private money loan, be sure to work with a reputable lender who understands your unique financial situation and can provide you with the best possible solution.
