What is a private lender or hard money lender?
A private lender is a lender who makes loans secured by real estate and typically charges a higher rate than a bank in exchange for making loans that a bank would not make, funding more quickly and/or requiring less documentation.
What differentiates private lenders from banks?
Private lenders differ from banks in that they often fund more quickly, with fewer requirements. Private lenders are sometimes called “asset-based lenders” because they focus mostly on the collateral for the loan, whereas banks require both strong collateral and usually strong credit and solid cash flow from the borrower.
Why do private lenders exist?
Private lenders exist because many borrowers often need a quick and reliable loan to secure a real estate transaction. Banks and other more traditional lenders that offer the lowest interest rates don’t provide the same combination of speed and transparency in their decision making and closing process as private lenders.
Where does the money come from for a private loan?
The funds originate from private investors who are seeking a secure return on their capital. The sources could be:
- An individual investor
- Or, a group of individuals who each invest in a fraction of your loan
- Or, a mortgage fund, funded by a group of private investors who have pooled their funds.
What are the advantages of borrowing privately?
- Conventional financial institutions often refuse to grant mortgage loans for properties that have been vandalized or seriously damaged in some way.
- Fewer requirements than other lenders.
- A simpler application process and quicker approval/disapproval decision.
- Less scrutiny of the borrower’s personal financial situation, including income and historical tax returns, compared to bank loans.
- Borrowers can allocate less time to seeking financing and instead concentrate on other business.
- Most private lenders do not expect perfect credit and substantial amounts of disposable income from borrowers, but instead focus on the merits of the specific deal under consideration.
- Self-employment is not seen as unacceptable to private lenders, whereas many banks view self-employment negatively and strongly prefer lending to professionals with very steady income.
What is the typical term of a private loan?
Most private loans are for 12 or 24‐months, with the possibility of extensions. Additional costs may be incurred when extending a loan.
What type of properties does Red Tower Capital loan on?
What are the requirements to qualify for a private loan?
We look at the current and future value of the property and the loan to value ratio. Your “exit strategy” and ability to repay the loan is also important. Smaller, lower LTV loans are usually underwritten less rigorously than larger, higher LTV ones.
Do you require an appraisal?
Yes, an RTC Member will walkthrough a property, or more typically, order a 3rd party appraisal or BPO. The borrower will be responsible for any cost incurred for 3rd party reports.
How long does a private loan take to close?
For Red Tower Capital, it typically takes 5‐10 business days from when an appraisal and complete loan package is received, though we can fund more quickly when necessary.
How does Red Tower Capital determine the loan amount?
At Red Tower Capital, we determine loan amount by internal underwriting taking into account any 3rd party appraisal or BPO.
How are funds dispersed for rehab and construction loans?
The draws are dispersed based on completed work.
How does Red Tower Capital know that the work has been completed?
There is an initial inspection to determine the scope of work, and subsequent inspections when draws are requested to determine if the appropriate work has been completed.
Will credit issues prevent a borrower from qualifying for a standard private loan?
No, a borrower can still qualify with credit issues, as we can also look at income, assets, LTV and/or exit strategy to help qualify the borrower.
What is the minimum credit score to qualify for a landlord loan?
We don’t have a minimum credit score.
Does Red Tower Capital lend to self‐employed borrowers?
What is the minimum and maximum loan amount?
The minimum that Red Tower Capital will lend is $100,000 and the maximum is currently approx. $5,000,000.
Can Red Tower Capital lend to an LLC or other entity?
Yes, RTC will lend to most types of entities, including LLCs.
Does a borrower have to go to an escrow/title company to close?
No, escrow can manage getting a signing agent / notary to bring the appropriate documents to you.
What are the fees associated with a private loan?
All of the fees customary to real estate loan transactions such as odd-days interest, escrow, title recording and notary fees, etc. Most of these are charged by or collected by the escrow company. Red Tower Capital – and other private lenders – charge loan origination fees, which are a flat percentage of the loan amount and processing, underwriting, and documentation fees. Our fees (and other loan terms) are very competitive with other private lenders.
Will borrowing a private loan affect my credit?
Red Tower Capital does not report loan status to the credit bureaus. However, during the underwriting process, we will do a “hard pull” of your credit (like conventional lenders and other private lenders).
Are banks statements and financial documents always required?
Here at Red Tower Capital, we may or may not ask for these, depending on loan size, LTV and other factors.
Is a private loan considered “same as cash”, and what does that mean for buying distressed properties?
Many sellers will consider a private loan – and private loan approval from a reliable local lender like Red Tower Capital – as the same as cash. This allows a borrower to purchase short sales and other distressed property that is sold as‐is more reliably. Conventional financing usually doesn’t allow the purchase of distressed properties without repairs being made prior to closing, and most distressed sellers will not perform any repairs.
What is an appraisal?
An appraisal is a report from a licensed appraiser, containing their opinion of the value of the subject property based on standard measures of property value.
Who does the appraisal?
Red Tower Capital uses a rotation of licensed, qualified and independent appraisers that can value any type of property.