Ask Cornerstone: How can I find a private money lender for a $50K loan on a $45K purchase?
I am looking to purchase an income property. It is a duplex in Monee, a suburb of Chicago, which was fixed up by a previous investor. It’s an income property and is already rented out. The asking price is $45,000. I would like to borrow $50,000 for duration of 30 years. I can give a lender the analysis of the monthly cash flow and complete estimated closing cost. How can I find a good private money lender for this purchase?
Unfortunately, you probably won’t find a lender that would be willing to loan in your situation. It’s a 111% loan request. An FHA loan is probably the best loan one could get. However, to qualify for an FHA loan, the buyer must live in one of the units. Also, FHA loans require a decent credit score, have a 3.5% down payment plus the money for the closing costs, have a number of months of reserve funds in the bank, and have enough income to qualify for at least 25% of the total loan amount.
Any other type of loan, whether a conventional loan from the bank or a private loan from an investor, will have more stringent requirements. Conventional loans will require 25% down payment, good credit score, and required income. Private loan will be at least 8% interest, require 20% or higher down payment, and have higher closing cost with points and terms of 3 to 7 years. If you have to go with private money be prepared to have $9K for down payment and $5K for other costs.
Lenders don’t make 110% loans because the borrower has nothing to lose. One would not have any “skin in the game” (as they say). It’s a risk that lenders are not willing to take.
I commend you for looking to start investing in real estate and rental properties. I wish you the best of luck in your endeavors.
Check out our other recent “Ask Cornerstone” post regarding conventional vs hard money loans. You may find the information useful and related to your question: http://cornerstone-company.com/why-are-hard-money-lender-rates-so-much-higher-than-banks/