Private Equity Mortgage Lenders
Private Equity Mortgage Lenders Focus On Available Property Equity, But Can Also Focus On Other Elements Before Funding A Deal”
Private money is being used more and more for short term financing options, both on residential and commercial property, where there is enough time, or the cost to complete is to high, to get a bank or institutional lender in place.
Strategically, many property owners and investors utilize private funds for bridging different transactions which can include buying the time necessary to find more ideal long term funding.
So while more people are considering AND using private equity lending as a primary option, there are still a lot of misconceptions in the market place about how private lenders make their borrowing decisions.
For instance, because private lending is always focused primarily on the equity in a property, then the immediate assumption is that not much else is going to be looked at or assessed by the private lender before making a lending/funding decision followed by near term funding.
Private Lender Due Diligence Can Be More
Than You Anticipate
The reality is that most private lenders will look at whatever they think is going to be relevant for them to get comfortable with a deal.
This most certainly will vary from lender to lender and even from deal to deal.
But the notion that just because you are asking for a private mortgage, that a due diligence process similar to what a bank would put you through is not going to be forth coming may or may not be true.
What is consistently true is that the lower cost forms of private money are going to perform more due diligence in order to make sure that there is very little chance of problems.
This can include review of financial statements, rent rolls, tenant contracts, and so on.
It can also include updating property and environmental appraisals similar to what a bank or institutional lender would require.
But many times potential borrowers will seek out private money with the expectation that there will not be this extra work or checking or review involved and just because a higher rate of interest is being charged, that assessing and lending against the equity in the property should be enough.
Certainly that can be enough, but as previously mentioned, that type of restrictive information approach can also lead to higher rates of interest and higher borrowing fees.
For these vary reasons, its not uncommon for a solid deal to end up being priced higher in the market because lower cost competitors were eliminated from the equation, based on the amount of information provided to them to assess.
There Are a Few Takeaways Here
First, the pricing on a private equity mortgage can vary considerably from one lender to another. Lower cost offerings are more likely to be provided for consideration when more information is made available to assess risk.
Second, if you have a strong financial profile to work with and are only trying to access private money for short period of time until lower cost long term financing can be arranged, then it can be highly beneficial to work with a private lender and provide the information they request, even if its information you don’t think they should need to look at as a non banking lending.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel