Private Money Lenders are a preferred form of financing for many real estate investors because of the
relative ease and speed with which loans are approved. It is a great way to leverage your own funds and enjoy more maneuvering room with your deals.
You’ve heard it is much easier to get approved for private money and that it is faster than getting a decision
on your application from a bank. However, while getting approval from a Private Money Lender is easier and faster, there are still ways your loan can be derailed. Just because it is easier, doesn’t mean it’s a sure thing.
Top Three Reasons A Private Money Lender May Reject A Loan Application
You thought a Private Money Lender would approve anyone, but you forgot one important thing they are still a business. Like any other business, they must earn a profit to stay in business. They would not be in business long if they approved all applications. Some particular situations may cause a loan to be rejected:
1. Insufficient Equity or Down Payment
A Private Money Lender realizes that there is some risk with any loan, but they don’t want to assume all the risk. As the borrower, the real estate investor will need to have a substantial amount of equity in this property or another property to secure the loan. If this isn’t the case, the real estate investor will need to make a larger down payment on the property instead.
The Private Money Lender may reject the loan application if the real estate investor can’t do either.
2. Insufficient Income
The Private Money Lender needs to believe that the loan will be repaid over the term. The real estate investor must show that they can make the monthly payments for the term. If the real estate investor cannot show enough income to make the payments, the loan will be denied.
3. Exit Strategy
The loan term from a Private Money Lender is usually short-term. The loan will likely have a balloon payment at the end. Most real estate investors will not have reserves to pay off the balloon. Before approving your initial loan, the private moneylender will want to know the real estate investor’s exit strategy.
- Sell the property
- Sell a different property
- Refinance with a new private money loan
- Obtain a conventional loan
If the Private Money Lender doesn’t see that the real estate investor planned their exit strategy, the loan application may be rejected.
The visionary and dynamic leader of Nova Money Lenders, LLC, an emerging private money lending institution. With a passion for innovation and a deep understanding of the lending landscape, Elizabeth is dedicated to driving the success of the company.
Drawing from her extensive experience and solid educational background, including a BSC in Mathematics and Physics from the University of Guelph, Canada, and a Certificate of Marketing from McGill University in Montreal, Canada, Elizabeth has developed a comprehensive knowledge of market trends, risk assessment, and strategic financial planning.
Throughout her career, Elizabeth has focused on both the investing and lending sides of the real estate sector, accumulating over 35 years of experience. She has honed her skills in various specialties, including real estate wholesale, fix and flip, rental properties (single family and apartment buildings), mortgage notes (1st and 2nd) (performing and non-performing), creative financing, foreclosures, short sales, and more.
Outside of her professional pursuits, Elizabeth indulges her love for fine jewelry, even becoming a bench jeweler, a budding gemologist, and a diamond appraiser.