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In fact, a lot of people can potentially become very successful investors in real estate, but very few people actually try. Most do not try to get rich this way because they think they can’t; they don’t have the money to invest in properties and they believe they cannot get financing by going to a bank for a loan. However, there is a better and easier way for you to finance your properties if you want to become a real estate investor. You do this through what are called private money lenders.

Private Money Lenders Explained

A private money loan is one that is financed through an individual who has spare money to lend and who wants to make a small profit off of that money. This is the most flexible financing option for real estate investors because you get to borrow money from a regular individual, just like you and me, instead of a bank or other lending institution – which can be very impersonal and formal. Banks and lending institutions have rules and regulations that they must follow when deciding who to lend money to, but private money lenders do not.

Finance Your Properties Through a Private Money Lender: a Better Way

Banks and other traditional lending institutions are bound by strict rules and regulations. They have to follow these regulations exactly. However, private money lenders can choose who they want to lend to, regardless of the investors’ credit rating, financial statements, and other financial benchmarks.

The Benefits of a Private Money Loan

As a real estate investor, you can approach a private money lender and make your case with them individually. You can explain to the private money lender why you are someone they should invest in, and after you’ve done so, they can make their own decisions. However, there’s more to it than that and the benefits go even further. If the private money lender is interested in what you have to offer, you both can sit down and work out financing and repayment arrangements that are of benefit to both of you. You can both state what you want out of the arrangement and agree on a payment schedule and interest rate that satisfies both of you.

What’s more, since a private money loan is a short-term loan, the lender may even be willing to wait until after you flip the property to receive any repayment at all. This allows you to focus on fixing and selling the property, without the anxiety that can be associated with payments on a property that hasn’t brought in any money.

Drawbacks to Traditional Hard Money Loans

As opposed to private money loans that benefit both lender and borrower, bank loans are often one-sided. They get to hold you to extremely high standards and, if you are lucky enough to receive the privilege of their financing, they also get to benefit from a high interest rate and other fees. There is also no room for payment flexibility or special arrangements. Therefore, even if you have a spotless credit history and have a high probability of receiving financing from a hard money lender, there are still many advantages to seeking out a private money loan instead.

Private Money Loan Benefits Recap

Private Lender can lend freely and does not have to abide by tough rules and restrictions. Allows real estate investors with problematic personal credit histories to secure financing for their properties.

Opens the lines of communication between lender and borrower. Borrower can negotiate an interest rate or flat fee that is almost guaranteed to save money over a traditional loan.

Borrower can make custom payment arrangements that will be beneficial to them and the lender. Payments may even be suspended until the property is sold.

There is no formal application process required. Instead, borrowers can negotiate directly with private money lenders and convince them to work with them in the purchase of the property or properties in question.

Private Lender will see borrower as a real person with a real goal, instead of just a paper application that must pass ridged guidelines.

All of these benefits make private money loans the most flexible funding option for real estate investors. A private money loan allows you a variety of options and opens the door for many real estate investors who would otherwise be turned down by a traditional lender.

You’ve had more than your share of difficulties in the last few months. You’ve lost a loved one or been through a difficult divorce. You’ve lost a job or had to change jobs. You’ve lost your health and have medical expenses stacking up. Maybe you’re struggling with increased utility prices or fuel expenses or an adjustable rate mortgage (ARM) that is unbearable. Perhaps, your property tax bill has gone through the roof.

However, while you’re occupied by trying to stop foreclosure from happening, you’re being constantly deluged with calls, letters and even house calls.

These investors are in the business of buying homes from people who are in danger of losing their homes to foreclosure and then selling these properties for a profit. They know that many people who are facing foreclosure have no alternative other than to sell their home for whatever price they can get.

Is it a good idea to sell your home to these investors to prevent a foreclosure? This depends, it should not be your first choice though; before selling to one of these investors, you should investigate other options like rearranging your loan first.

You Can Stop Foreclosure Through A Workout Of Your Loan

If you have missed a few payments, your credit score will drop dramatically; once this data is on your credit report, it will be difficult if not impossible to get a new loan to refinance your existing mortgage.

Every lender has what is known as a loss mitigation department, whose purpose is to limit the potential losses, which could be faced by the lender on their loans. Part of their duties are to arrange payment plans with homeowners whose mortgages are in default to get them current with their payments again. This process of working with the loss mitigation department does not require getting approval for a new loan, which makes this an attractive alternative for those who are in default on their mortgages.

If You Do Work Out a Repayment Plan, Beware of the Challenges

Loss Mitigation departments are lightly staffed. One of the biggest problems with workout plans is caused by employee overload. At time of high default rates, like we’re experiencing now, the employees have too many files to work on. And they have a limited time to process each case. The result is, the lender offers you a ‘canned’ repayment plan that has too short of a ‘catch up’ time and too large of monthly payment increase that is not realistic for your budget to sustain.

Because you’re between a rock and a hard place you’re tempted to take it to keep your home from being foreclosed on. In reality you just set yourself up for a failure. A few months down the stretch, you’ll be back in foreclosure again.

How to Hire Foreclosure Workout Professionals

One of the easiest ways to get out of foreclosure by using the loss mitigation process is by getting a professional in the field to negotiate with the mortgage lender for you. There are companies who have extensive experience in this area and have negotiated thousands of repayment cases successfully for homeowners whose mortgages are in default. Some of these companies have strong working relationships with the loss mitigation departments of mortgage lenders all over the country.

Firms like these will take a thorough look at your finances and develop a repayment plan, which will meet your budget in order to allow you to successfully get back on track with your payments. These professionals have the inside track on the repayment programs, which may be available from different lenders, they may even be able to negotiate a lower interest rate to help you reduce your payments.

You may think that these services will be too expensive, given your financial difficulties; however, most of these services charge a low flat fee, usually about a months payment. With the money and time these negotiations can save you, they usually more than pay for themselves? They can often even negotiate a deferral of your next payment.

If Lender Mediation Is Not An Option

What if loss mitigation isn’t a possibility for you? Then you may have to go ahead and sell your home to prevent having a foreclosure record on your credit report. Listing your home for sale with a realtor is the best way to go if you have ample time, since you will be able to get a higher price for your home. If you are short on time, you may find that selling to an investor makes the most sense; just try to deal with an investment company, which has the resources to close the deal quickly.