Private equity home loans, also known as hard money loans, can be a great financing option for real estate investors or homeowners who don’t qualify for traditional bank loans If you need to access capital quickly or have poor credit, a private loan secured by home equity may get you the funds you need
In this comprehensive guide, I’ll explain what private equity home loans are, their pros and cons, eligibility and costs, and how to apply
What is a Private Equity Home Loan?
A private equity home loan is a non-traditional mortgage loan made by private investors rather than banks or mortgage lenders. Also called hard money loans or trust deed loans they are secured by the equity in your home rather than your creditworthiness.
Private loans have the following key features:
- Made by high net worth individuals, companies, or private lending firms rather than banks
- Based on the equity/collateral in your home, not credit score
- Typically for 12-36 months with balloon payments
- Higher costs than conventional loans but faster funding
Private loans are considered “bridge” financing to provide temporary access to your home equity between long-term financing options. They are repaid when you refinance into a standard mortgage, sell the home, or pay off the balance.
Who is Eligible for a Private Home Loan?
Private home loans have flexible eligibility requirements compared to traditional mortgages from banks. Here are some examples of who may qualify:
- Real estate investors – for flipping, renovations, or rental properties
- Self-employed borrowers with irregular income
- Borrowers with recent credit events – bankruptcy, foreclosure, short sale
- Low credit scores, even 500-550 FICO ranges
- Low down payment or limited reserves
- Non-U.S. citizen borrowers
The main eligibility requirements are having significant equity in the home (at least 30-50%) and meeting the lender’s debt-to-income standards for making payments. Private loans are almost always for investment properties, not primary residences.
Pros and Cons of Private Equity Home Loans
| Pros | Cons |
|---|---|
| Faster closing and funding, as little as 2 weeks | Very high interest rates, 8-15% |
| Low credit score or no minimum score required | Large upfront fees, 2-10% of loan amount |
| Low or no income documentation required | Balloon repayment required at end of term |
| High LTVs allowed with enough home equity | Risk of foreclosure if payments lapse |
| Interest-only payments keep costs down | Variable rates fluctuate over time |
As you can see, private lending provides easy access to capital but at a higher cost than conventional mortgages. Make sure you have a plan for refinancing or repayment before taking out a private loan.
Costs and Fees for Private Home Loans
Private loans come with much higher costs than standard mortgages. Here are typical fees:
- Interest rates of 8-15%
- Upfront points of 2-10% of the loan amount
- Origination fees of 1-5%
- Monthly servicing fees around $30-50
- Prepayment penalties if refinanced early
You’ll also be responsible for appraisal fees, title fees, and any other third-party costs. Shop around with multiple private lenders to find the best rate.
How to Apply for a Private Equity Home Loan
The application process for private lending is much faster than at banks – you can often get approved and funded in as little as 2-4 weeks.
Follow these steps:
- Contact private lenders or mortgage brokers that offer private loans
- Fill out a short application with your contact and property information
- Provide proof of property ownership and equity
- Allow the lender to assess your home’s value if an appraisal is required
- Submit any other requested financial or income documentation
- Get an approval decision within 1 week in most cases
- Have your attorney review closing documents before signing
- Funding occurs shortly after closing with direct deposit into your account
Be sure to ask lenders detailed questions upfront so you understand all costs, risks, and repayment requirements before committing to the loan.
alternatives.
Private equity home loans allow real estate investors and homeowners with poor credit or irregular incomes to tap into their home equity for short-term financing needs. But make sure you shop around for the best rates and terms and have a solid repayment plan before signing on the dotted line.
How to get approved for a Private Mortgage Loan
Private money borrowers secure their loans through equity rather than creditworthiness. Therefore, these types of loans typically referred to as equity-based mortgage loans, where the collateral value is of more significance than your financial situation.
Private investor mortgage loans come with shorter terms typically around five to fifteen years and are temporary loans until the applicant can restore credit, improve their current financial situation, or make necessary improvements to the home to qualify for a refinance program to meet their long-term needs. We will work with you to find the right strategy to create a more stable and gainful future.
What is a Private Investor Mortgage Loan?
When you cannot meet one or more of the qualifying requirements for a traditional mortgage loan or government lending program, a private investor mortgage loan could be exactly what you need. Some reasons for not qualifying for a traditional mortgage include too low of a credit score caused by an event or other unavoidable situation, the inability to document income in the format or to the extent that is required or the property itself is not within guidelines for a traditional mortgage. A private loan gives quite a bit more flexibility when it comes to individual situations that do not fit any other loansâ criteria.
With a private investor mortgage, paperwork is lessened, and the timeline between the date of application and the closing date is substantially shorter. The higher upfront cost is a tradeoff for faster access to capital and a much less stringent approval process.
How private equity fills the lending gap for commercial real estate
FAQ
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