{"id":1218,"date":"2019-06-12T20:31:10","date_gmt":"2019-06-12T20:31:10","guid":{"rendered":"https:\/\/privatemoneysource.com\/broker-blog\/?p=1218"},"modified":"2019-06-12T20:31:10","modified_gmt":"2019-06-12T20:31:10","slug":"private-money-faq-2","status":"publish","type":"post","link":"https:\/\/privatemoneysource.com\/broker-blog\/?p=1218","title":{"rendered":"Private money FAQ"},"content":{"rendered":"\n

Clay Sparkman<\/em><\/p>\n\n\n\n

I like to post our general FAQ from time to time.<\/p>\n\n\n\n

Private money is often misunderstood. Many industry professionals know very little about it, and fallacies and misconceptions tend to dominate the collective wisdom. I have made it my mission to try to educate professionals regarding the realities of private money. In this capacity, I spend a lot of time answering questions about private money. I figured it was about time to prepare a FAQ on private money and share it with this group. So here you go.<\/p>\n\n\n\n

-What is private money used for?
\nPrivate money is generally used as a bridge: a way to get from point A to point\nB. It is generally a short to medium term solution (1-3 years), and there is\nnearly always an exit strategy going in. It is used for all types of real\nestate secured financing: commercial retail, restaurants, hotels\/motels,\nmarinas, elder care facilities, industrial, agricultural, raw land, land\ndevelopment, construction, rehab, multi-family, single family homes,\nmanufactured homes, and floating homes. For a list of our private money\nloan programs<\/a>, click here<\/a>.<\/p>\n\n\n\n

-What are the interest rates?
\nPrivate money rates generally range from 8 to 13% (typically 11%). The rate is\ndetermined by looking at a combination of factors: (a) LTV ratio, (b) strength\nof borrower, (c) condition\/desirability of property, (d) actual cash-in or real\nequity contributed by borrower. A list of our loan\nguidelines<\/a> may be found here<\/a>.
\n-What fees are involved?<\/p>\n\n\n\n

We charge a loan fee which varies depending on the\nparticulars of the loan between 3-5% of the gross amount of the loan. We also\ncharge a doc prep fee ($675 or more, depending on the size of the loan), a\nproperty inspection fee ($500 or more, depending on the location of the\nproperty), and a collection account setup fee ($470 or more, depending on the\nsize of the loan). That is all the charges you will ever see. We have no hidden\njunk fees.<\/p>\n\n\n\n

-Can the fees be paid from the proceeds of the loan?
\nYes, if there is enough equity in the project. This is generally the case.<\/p>\n\n\n\n

-Is there a pre-payment penalty?
\nMost of our loans have no pre-payment penalty.<\/p>\n\n\n\n

-Why would anyone pay those kinds of rates and fees for a\nloan?
\nThere are many reasons why a borrower would choose to use private money over a\ncheaper institutional option. For example, professional real estate investors\nlike to use private money when buying because they are able to make offers\nwhich are not constrained by long timelines and numerous rigid conditions.\nOften times speed is a very significant factor in completing a profitable\ntransaction and in those cases it often makes sense to pay for a short-term\nprivate money option rather than loose the deal. Frequently the condition of a\nproperty won\u2019t allow for the initial financing with conventional money, and in\nthose cases private money may be used. Often the type of property is a factor:\nbanks don\u2019t like lending on raw land and lots, but private money lenders are\nmore inclined to do so. Cash leverage is another factor. Fairfield Financial,\nfor example, loans based on the true value of a property, not the purchase\nprice, so sometimes we lend most of the acquisition cost for a property.. The\nstructure of the deal may be a factor. Most private money lenders allow the\nbuyer to establish their equity through the mechanism of a seller carry back;\nbanks won\u2019t do this. The list goes on and on.<\/p>\n\n\n\n

-What is the most common use for private money?
\nOur most common loans are probably construction, rehab, and land development\nloans. We have an entire FAQ devoted to such loans at: http:\/\/www.privatemoneysource.com\/articles\/rehabfaq.php<\/a><\/p>\n\n\n\n

-How fast can private money loans close?
\nWe have been known to close loans in a matter of a few days, but more\ntypically, you should figure on 10-15 business days. (Keep in mind that it is\nonly possible for us to move quickly if the borrower, broker and other third\nparties are moving quickly as well.)<\/p>\n\n\n\n

-is an appraisal required?
\nSome private money lenders require them. We don\u2019t. Evidence of value is a\ncritical part of the private money loan process. However, it is our opinion\nthat a good set of comps is just as effective in establishing value as a good\nappraisal. Many of our borrowers are professional investors, and we feel that\nthey are qualified to perform the value analysis. This allows us to streamline\nthe process. However, it is important to note that putting together a god set\nof comps is hard work. See the following article on our website for a detailed\ndescription of how to prepare a proper value analysis: http:\/\/www.privatemoneysource.com\/articles\/comps.php<\/a><\/p>\n\n\n\n

-As a mainstream mortgage broker, I don\u2019t see much of this\ntype of thing. Why should I be interested in private money?
\nTo be perfectly frank, it is my belief that mainstream mortgage brokers are\ngradually being squeezed out of the industry. Lenders are ramping up their\noperations to better provide online loan sourcing directly to borrowers. We saw\na similar thing in the travel industry. The travel agents that have survived,\nand even thrived, are the ones who effectively established niches within the\nindustry. It is my belief that the same will ultimately be true for mortgage\nbrokers. Plain vanilla loans can be easily processed in an assembly line\nfashion which easily translates to the world of the novice and a web browser.\nNiche lending, on the other hand, tends to be a hand-crafting of sorts, and\ncannot be easily automated. Look at private money. There are no absolute rules.\nMany factors must be considered in making a decision and frequently those\nfactors are intangible. Ultimately a high degree of thought work and common\nsense is involved. Private money will always be a people process. At the very\nleast, it allows you to broaden your offerings and make yourself more\nattractive to borrowers who may need different kinds of lending. So, if you\ntell me, I am not interested in private money because I don\u2019t do unusual loans,\nI say to you, you might want to reconsider.<\/p>\n\n\n\n

-As a mortgage broker bringing you this transaction, how do\nI get paid?
\nIt is simple. You bring us a borrower. We price the loan to you. (Think of\nyourself as a wholesale buyer.) You price the loan to your client, adding your\nfees as appropriate. You stay involved in the loan (or not) as you choose, and\nprior to closing, you submit a fee demand to escrow and receive a check\ndirectly from the title company. For more information on this topic, see: http:\/\/www.privatemoneysource.com\/brokers.php<\/a><\/p>\n\n\n\n

-Why do they call it hard money?
\nIt is difficult to find an answer to this question. I\u2019ve heard plenty of\nspeculation. Some people say that it\u2019s because the money is used for hard to do\nloans. Others say it is because the loans are hard to get or hard to pay. It is\nmy belief that it is called hard money because traditionally it has been real\nmoney in the sense that it is not borrowed. Institutions loan borrowed money,\nand in this sense, they loan soft money. However, I must point out that things\nhave changed a bit over the years, and these days a good deal of hard money is\nin fact borrowed.<\/p>\n\n\n\n

-How do I go\nabout doing a private money loan with Fairfield Financial?
\nThere are basically seven steps.
\n(1) First, run the concept by us. The best way to get started is to provide us\nwith a high-level summary of the loan. You may e-mail a summary, or you may use\nour online submission engine, which will walk you through the process. It is\nquite simple to use. You will find that at: http:\/\/www.privatemoneysource.com\/loanproposal.php<\/a><\/p>\n\n\n\n

(2) If we\nlike the project concept and feel that the numbers are acceptable, we provide\nyou with a rough quote.<\/p>\n\n\n\n

(3) Once you approve the rough quote, we provide you with a\nlist of items that we need to receive and review in packet form.
\n(4) We then review this loan packet. We ask that this be sent via overnight\nmail or send via e-email, as a single Adobe or Word attachment.
\n(5) If all this checks out we ask the borrower for a deposit (average amount =\n$1,000). This should be in the form of a cashier’s check or money order. We\nprovide a conditional loan commitment letter at this time, and the deposit is\nfully refundable (as described below).
\n(6) We send someone out to inspect the property.
\n(7) If the property checks out, we draw up the documents and close the loan\nthrough escrow.<\/p>\n\n\n\n

-Is the deposit check refundable?
\nIf we close the loan through escrow, the deposit is applied as a credit to the\nloan fees. If we don’t close the loan because (a) the borrower does not or\ncannot perform or (b) the project upon inspection is “significantly”\ndifferent than as represented, we keep the deposit to reimburse us for our\ncosts. Otherwise, if Fairfield fails to perform for any reason, we return the\ndeposit to the borrower.<\/p>\n\n\n\n

-What needs to be included in a private money loan package?
\nAs I said, we provide a list specific to your loan scenario. However, if for a\nlist of our general packaging guidelines, please see the following: http:\/\/www.privatemoneysource.com\/packaging.php<\/a><\/p>\n\n\n\n


\n\u2013 Clay (clay@privatemoneysource.com, 503-476-2909)<\/p>\n\n\n\n

Clay is Vice President of\nFairfield Financial, a primary source for private money since 1964.  Fairfield\nis currently targeting loans in OR, WA, CO, ID, ID, MT, and NV.  To submit\na loan to Fairfield for consideration: <\/em>http:\/\/www.privatemoneysource.com\/loanproposal.php<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Clay Sparkman I like to post our general FAQ from time to time. Private money is often misunderstood. Many industry professionals know very little about it, and fallacies and misconceptions tend to dominate the collective wisdom. I have made it my mission to try to educate professionals regarding the realities of private money. In this […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_s2mail":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts\/1218"}],"collection":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1218"}],"version-history":[{"count":1,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts\/1218\/revisions"}],"predecessor-version":[{"id":1219,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts\/1218\/revisions\/1219"}],"wp:attachment":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1218"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1218"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1218"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}