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Differences Between Scottsdale Private Money Lenders and Traditional Money Lenders

Choosing between traditional versus alternative lenders can make all the difference in your financial success. Read more to learn the benefits and risks of borrowing from alternative sources.

1.   Scottsdale Private Hard Money Lenders assess the value of the property, and consider that one of the most significant factors when considering lending money. This is determined by the LTV (loan to value) factor or the ARV (after repair value) factors. Sometimes as much as 75% can be lent. Starting the assessment with value factors and collateral places personal financial history second on the list.

2.   Financial considerations are heftier in conversations with traditional money lenders. In these cases, a loan will only be given with a credit score and debt-to-income ratio that is met and in line with the bank’s many standards. However, Scottsdale Private Hard Money Lenders can offer similar loans based on the value of your property, even if your credit score is not perfect. Because private lenders know they may possibly be taking a risk by lending the loan, their interest rates tend to be as high as 18 percent.

3.   Flexibility and acceptance are two ways that the private lender relationship can be very individualized compared to a public lender. Standards are considered, but imperfect scores are not sure-fire rejections. A rejection from a bank is not the end-all-be-all, and should not be treated as such, because there are still other individuals who may be able to provide offers. The relationship between a private lender is much more transparent than one with a bank.

4.   Private investors can act much faster than public investors. They tend to be able to get the process going within about a week, while private lenders can sometimes take over a month or more. Being on a time crunch is a major influence for fixer uppers, real estate investors, and individuals working to prevent a foreclosure.

Where to Find Scottsdale Private and Public Lenders

Traditional loan lenders tend to be public institutions like banks and credit unions, while alternative lenders are private investors. Sometimes a referral from the bank or other institution may even lead you to other lenders, as can many lists found on the internet based off of local or general searches for alternative lenders. It is important to be careful when considering Scottsdale Private Hard Money Lenders. Further research into the group will let you know whether or not you want to be conducting business with them, as will a thorough read of their interest rates, fees and terms. Having a real estate attorney involved in the initial is one way of validating the legitimacy of the lender, as well as gain any additional advice about your lending situation.

Closing Costs of Your Decision

The differences between private and public lenders are enough to provide options for people in various types of financial situations. Identifying your immediate needs, and the ways to best profit off of the loan, will help dictate which type of lender reaps the most benefits and leads to a successful borrow.

Scottsdale Private Money Lenders vs. banks and credit unions

You might be surprised at some of the differences in borrowing from a bank versus borrowing from a Scottsdale Private Money Lender. Let's look at those differences and how they might affect your search for real estate investment funding.

First, let's look at the things that Scottsdale Private Money Lenders and banks have in common. Both will assess the viability of the loan using three main criteria:

1.   The borrower's payment history and credit score

2.   The borrower's capacity to make payments, including income and bank account balance

3.   The borrower's collateral, or any assets that can be put up to secure the loan

Lenders call these the 3 C's — credit, capacity, and collateral. The difference between Scottsdale Private Money Lenders and banks lies in how they evaluate these criteria. Banks are subject to strict regulations imposed by the federal government, so they need borrowers to fit in a very specific box. The borrower needs to have a good job, a clean credit history, and collateral to even get their foot in the door.

What to do when you don't fit in the bank's box

Unfortunately, many people don't fit into this narrow box. Some are self-employed and don't have a regular income history to point to. Others have issues with their credit scores and still others have experienced a bankruptcy, short sale, or foreclosure.

Scottsdale Private Money Lenders are small business and individuals whose hands aren't as tied as the banks. They have the flexibility to look at each borrower on a case-by-case basis and determine risk. They'll review the 3 C's, but their requirements may be much lower and they may be able to incorporate mitigating circumstances into their considerations. Typically, private money loans are based more on collateral than anything else.

Finding a private money lender in Scottsdale

Imperfections may not work in the cookie-cutter world of the banks and credit unions, but private loans are more flexible. This is both a bad and a good thing. It's good because it fills in the gap left behind by banks. It's bad because it can make it hard for the average person to find the right lender for their needs. If you've been turned down by a bank or you don't feel you meet their criteria, finding a Scottsdale Private Money Lender in Scottsdale is simple. In fact, you're already in the right place! Give us a call to see how we can help.