private lending

5 Reasons to Choose a Private Real Estate Lender over a Traditional Mortgage

Whether you are looking to buy your first investment property or your 15th, you have several funding options available to you. Traditional banks and mortgage brokers often come to mind first, but private real estate lenders offer more flexibility and better terms. Below are the top five reasons to choose a private real estate lender over a traditional bank or conventional mortgage. 

#1 – It’s Easier to Qualify for a Private Loan

Banks and mortgage brokers use cookie-cutter processes for qualifying borrowers. You’ll be asked to deliver mountains of paperwork to your loan officer, and it’s the information in that stack that determines your ability to borrow. Your credit score is the primary consideration, followed by your overall debt-to-income ratio and your employment history. If you have established a business, there is some variation in these processes, but credit is still a key player. Private lenders, on the other hand, utilize their own criteria to determine your creditworthiness. It’s about more than just your credit score, which means it’s easier to qualify. 

#2 – Private Lenders are Real Estate Experts

The loan officer at your bank follows a precise set of guidelines set forth by the bank, and most of them will not have an extensive background in real estate. Private lenders specializing in real estate are experts in the field, which means they will also use their own expertise to qualify you for a mortgage. They consider the asking price, the assessed value, the location, your plans for the property, and much more – not just your employment, income, or credit history. 

#3 – There’s Less Regulation

Federal and state regulations can severely limit traditional mortgage lenders, and this can have a negative impact on your overall experience. Agencies like Fannie Mae, Freddie Mac, and even the Veterans Administration each have their own unique sets of guidelines, and these tend to become limitations for real estate investors. Private lenders are not subject to these same regulations, which means they can offer a wider range of loan types and use different qualifying criteria. 

#4 – It’s a Fantastic Option for Investors with Multiple Mortgages

Fannie Mae sets limits on the number of financed investment properties you can have at any given time, and as of 2023, that limit stands firm at 10. While high LTV refinance loans are exempt from this rule, it still creates undue limitations on investors who have a knack for spotting profitable properties. Private lenders are not held to these same standards, which means there is no limit on the number of financed investment properties you can have at the same time. Instead, private lenders consider each individual transaction as well as your ability to repay the loan. 

#5 – You Can Get Funded Faster

Savvy real estate investors know that time is of the essence when it comes to getting the best possible value for their money. In real estate, cash is king, which means properties go to the investor who can gather the funds the fastest. It can take up to 90 days to get funded with a traditional mortgage thanks to the complex government regulations that affect the underwriting process. Conversely, private lenders work much more quickly, and depending on the situation and loan type, investors can have their funding in as little as two weeks. 

Traditional banks and mortgage brokers will probably always be the first choice for homeowners seeking to purchase their primary residences. Experienced real estate investors know that private lenders offer more flexibility, more personalized service, faster funding, and fewer stipulations. The next time you purchase an investment property, reach out to a specialized private lender to see these differences for yourself.