Do we need loan insurance for Private Money

[Alex Ng]

The Title says it all. Currently met lender  who offers extremely good terms. 7% int only split over 2 years. He didn't ask for any upfront fees but does require payment for loan insurance. The loan insurance company seems legit. The loan consultant i met online referred me to this lender had a valid NMLS. I was wondering if loan insurance is a norm when borrowing private money? Want to know if I am walking into a scam

[Jeff S.]

This is a common scam, @Alex Ng. There is no such thing as an insurance policy that guarantees a private loan. I wish there were. The only insurance any legitimate private lender will ask you to buy is a lender's title policy and fire/hazard insurance (or landlord insurance, or homeowner insurance, etc., as appropriate). These would be purchased when you close your deal. The title insurance would be paid out of the proceeds you wire to title. The fire & hazard insurance would be paid by you directly to the insurance company or possibly out of escrow.

There’s never a reason to send money for insurance to a lender. They can say it’s not an upfront fee, but that’s obviously untrue if you must pay it before you get the loan. Furthermore, because you have no idea with whom you are communicating, you might reevaluate your process, Alex.

Doing everything online is a formula for disaster. Anyone can claim to be anyone with a license or NMLS registration. Looking these up doesn’t prove you are dealing with who you think you are. Glow Insurance Services seems to specialize in workers' compensation insurance and does not appear to be in financial services. Did you Google them?

An NMLS registration should not be a requirement either, since this is not required of lenders who only make business purpose loans. For example, we are licensed CA Finance Lenders and only make business-purpose loans. We are not registered on the NMLS. Nor is this required of us.