Privatey Lenders vs. Conventional Lending: A BIG Difference!

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There are two types of mortgage lenders TODAY and to play THEIR game you must know the difference.

Conventional Lending

Conventional loans are those made by mortgage lenders and most often refer to mortgage loans underwritten to guidelines issued by Fannie Mae or Freddie Mac. Both of these mortgage giants corner nearly two-thirds of all residential home loans made today. Private loans are those issued by a mortgage lender that is not underwritten to third party guidelines. Why is that so important?

Conventional lenders operate under a different business model compared to a private lender. When a mortgage company issues a loan using third party guidelines, the company does so in order to be able to sell that loan in the secondary market. Lenders make money by issuing a mortgage loan as well as selling that same loan to a willing buyer. When a conventional loan is approved, the lender taps into its line of credit to fund the loan then as long as the loan was approved using proper guidelines the loan can be sold, the credit line replenished and in a position to make even more home loans.

Private Money Lenders

Today everyone calls themselves the above. It's the wild west! A borrower selects a private lender because the property being financed falls outside of current industry guidelines such as the state of disrepair that a traditional bank or mortgage company won’t finance. A private lender can provide the necessary funding to acquire and rehabilitate a property. And they can take you for as much as they can soak you for!

A private loan is issued for only as long as it takes to acquire and rehabilitate or remodel the property. During this period, the property is marketed and the borrower searches for a buyer. Because the property will be remodeled to the point it no longer falls outside of conventional lending guidelines, borrowers can subsequently refinance the property with a conventional, long term loan. 

Private lenders are also more focused on the before and after value of the property, as well as being provided with a solid exit strategy from the borrowers. If the project makes sense and the private lender can easily see how and when the property will be sold and how their private loan will be paid back, the lender can approve the loan application. I was told they do NOT have to disclose their fees upfront. If they ask for 4 points tell them NO! It's ALL negotiable but not when there is UNDERWRITING involved.

You KNOW what this means!!! 

You're much better going to a REAL local lender that you can meet with face to face. 

1) Get their loan sheet UPFRONT

2) Ask if there is an APPLICATION fee BEFORE you are approved!!

3) Ask if there's an underwriting dept.. If there is HANG UP! 

4) Ask if an appraisal is required. You'll pay for this!

5) Ask if a survey is required. You'll pay this!

6) Ask if there are MANAGEMENT FEES to release the rehab funds! There usually will be. Ask and get it in WRITING!

7) Ask if you'll need RESERVE FUNDS...they're usually will be. And a lot!!!!

We just GOT beaten up after 14 days with Direct Private Lender

Direct Lending Partner is in Bethlehem, Pa. Broker was in Fremont, Ca. Loan Originator was in St Augustine, Fl. Processing & Underwriting Manager was in Kissimmee, FL. Appraisal Nation is in Cary, NC. Title Co was in Boca Raton, Fl. Our property was in Largo, Fl!!! A total nightmare!!!

To reiterate:

Question 1: what are your fees. Email them to me.

Question 2) Is there an application fee?

Question 3) Do you have an underwriting dept?

If so HANG UP!