Private money loans to purchase a mortgage usually come from an individual or group of individuals who use their money for real estate investment purposes, short term, so that you can take advantage of a market situation, without having to wait until your credit improves, foreclosure or bankruptcy seasons, etc.
This type of loan is exclusively based off the purchase price of the property, not the appraised value.
Usually, because it is an individual’s money, they are very conservative with the amount they will lend, in relation to what the property is worth. LTVs as high as 65% is what we can do, in great situations.
Purchase Price $400,000
Property Appraises for $700,000
Private Money Investor will lend 65% of the purchase price, or $260,000
Terms will be Interest only at 9% for 5 years
Points Charged will be 4
Closing Costs – $4000
Total Cost to Buyer $140,000 down payment, plus $10,400 in points, and $4000 in closing costs.
TOTAL – $154,400
Why would anyone do that loan?
While the above example is a little excessive and worst case, it is simply there to discuss the motivations of each part involved. For a detailed analysis of your next purchase loan, and to see if a private money loan is right for you, fill out some basic information on our contact form to get started.
