The market for private lenders for real estate is very different from the traditional lending market. Private mortgage lenders run the gamut from larger companies to very small ones. They offer different priorities and different terms and types of loans. They also share one very important commonality -- they're in the business of making loans.
Issuing Loans, Not Denials
While you might think that banks are in the business of making loans and earning profit, they look at their responsibilities differently. Banks are in the business of not losing their depositor's money, which means that they tend to be biased towards not lending.
Private lenders for real estate, on the other hand, are making loans because they want to be making loans. Given a range of different investment options, they have actively chosen to be in the real estate lending business and, as such, they are much more likely to look for a way to make a loan work. After all, if they don't lend, their money doesn't work for them.
Hard Money Lender Differences
Within that commonality, private lenders for real estate come in different types. Here are some of the differentiating factors between them:
Borrower qualifications. Some private lenders pay almost no attention to the borrower, focusing instead on the value of the underlying property and counting on the borrower's down payment to protect them. Others are willing to lend more aggressively but look at the borrower's qualifications more carefully. In general, a private lender is more likely to look at a borrower's entire story and situation instead of just ruling him out based on a single criterion.
Focuses. Private lenders for real estate frequently focus on certain types of property or certain geographical areas. This helps the private lender be a resource to the borrower, since it may have experience with the asset type. In the event that the borrower doesn't make his payments, having specific knowledge also helps the lender manage the property that it takes back.
LTVs. Higher down payments are common among private lenders, since they want to minimize their risk by having ample equity in the property. However, lenders can vary.
Underwriting standards. Lenders that focus on investment property may apply a debt coverage ratio. Those that lend on vacant properties typically underwrite to appraised value, while some will lend on after-improved values for fixer-upper properties.