Private money loans are funded by individuals or funds, not banks or agencies. They are the fastest path to close for fix-and-flip, bridge, or distressed property transactions. Understanding how these lenders underwrite and price deals positions MLOs to move investors who cannot fit conventional boxes.
How Private Money Lenders Underwrite
Private money underwriting is asset-based. The lender cares about the collateral and exit strategy far more than the borrower's income or credit. Most lenders require:
- ✦Minimum property LTV of 60% to 70% (lender loans up to that threshold)
- ✦A documented exit strategy: sale, refinance, or rental conversion
- ✦Property in lendable condition or a repair escrow built in
- ✦Basic credit pull to identify liens, not to qualify income
Pricing and Terms to Set Expectations
Private money is expensive by design. The cost reflects speed and flexibility, not a long-term hold product.
- ✦Rates: 9% to 14% depending on deal quality and lender
- ✦Origination points: 2 to 5 points up front
- ✦Terms: 6 to 24 months, balloon at maturity
- ✦Prepayment: many private lenders have no prepayment penalty
- ✦Interest: often interest-only monthly with balloon principal
When to Use Private Money vs. Hard Money
Private money is typically a single investor or small fund. Hard money lenders are more institutionalized and may have underwriting standards closer to conventional non-QM. Private money moves faster and is more negotiable. Hard money may offer slightly better rates for well-qualified investors with a track record.
Aria can compare private money, hard money, and DSCR programs side by side for any investor scenario and pull cited guidelines in seconds. Ask at vicariointel.com.
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