Private Real Estate Loans Are Helping Homeowners During The Crisis

Stephen Von | Oct 6, 2011 |

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Private money lending is a phrase that describes temporary lending, generally utilizing real estate property as collateral for the loan. It is usually known as Bridge Loan. Bridge loans can be be extremely valuable sorts of loans to provide money for the buying a brand new dwelling should you decide to sell your present property and make use of your earnings for a downpayment yet can’t as you haven’t actually sold your current home yet.

In a scenario such as that hard money lenders may well loan a person the money for a downpayment on the new house using your existing house as collateral. So once you sell off the existing dwelling instead of spending that money towards your new household you'd pay off the lender.

Hard money loans may end up being more expensive as opposed to conventional loans. These loans may often have a shorter time-span with a lot higher rates of interest and frequently call for "balloon" payment timetable of one year. You'll want to pay off the mortgage lender as soon as you are able to. If you can't sell your present residence ahead of the balloon payment is due you would have to pay back the lender entirely or experience a default on the mortgage.

So why would a person take this kind of chance? Well, it really makes a lot of sense for specific occasions. Consider this situation: you have received an offer on your house with a closing date of six months. You find a new property that you fall in love with but the owner will only accept offers with closing dates within two months. A bridge loan allows you to close on the new property and instead of using money you may not have for a down payment, the lender “floats” it to you and gets paid back four months later (plus interest payments).

Also, not everything goes smoothly in the world of real estate transactions and when things go awry, hard money lending in the form of bridge loans can be real life savers. Sometimes you could end up closing on the sale of your current house and the buying your new one in the same day. In fact, often there are three or more closings all hinged on each other where the sellers of the first transaction are the buyers on the second and so on. But it could be (as often can happen) that something goes wrong that is nobody's fault. An example: the lending of the purchaser of your house just fell through on the same day you are under contract to purchase another house. You could very well be found to be in breach of contract without even having control over the matter. So this is where you could use a bridge loan to pay off the financing until more permanent finance solutions are found.