Often real estate investors decide to opt for the flexible access to funding provided by private lender as opposed to borrowing from traditional lenders. While hard money loans have higher interest rates than loans from banks and other institutional lender, private loans have advantages for the real estate investor, such as it is easier to qualify for a private loan. Other advantages include less paperwork and more privacy, since the loan is based upon the value of the property that is used for collateral as opposed to the credit history and financial situation of the borrower. Private loans are most commonly used for rehabilitating properties or for funding properties that the investor plans to resell. Given the purposes of these loans, they tend to be made on a short-term basis, with maturities ranging from six months to three years. These loans are not extended for the purpose of buying a private residence; rather, they are commercial loans that are secured by real estate.

Since the parameters private lenders use differ than those of institutional lenders, it is wise for prospective borrowers to become with the factors that private lenders use when making decisions are to whether they are going to extend a loan.

Some of the factors include the following:

* Lenders are more concerned about the value of the property that is going to be used as collateral for the loan than the credit history of the borrower. Lenders place a great deal of weight on the appraised value of the property, as well as the potential of the property to produce income. The reason being is that the lender does not want the expenses that are incurred if the borrower defaults and then the lender is forced to assume ownership of the property. The loan to value ratio of private loans ranges from 65 to 75 percent of the appraised value of an income producing property. For properties that do not produce income, such as vacant land, the typical loan to value ratio is 55 percent.

* Private loans close much faster than loans from traditional investors. Banks and other institutional investors can take anywhere from 60 to 90 days to close on a transaction, the typical private loan can close in 7 to 10 days. The borrower must be prepared to act quickly.

* Private lenders are very interested in the plans of the borrower to exit the loan. Given that most private loans are on a short-term basis, the lender will want to have an exit plan from the borrower. Examples of typical exit plans include securing a traditional loan once renovations or rehab work is completed or reselling the property.

Take Time to Consider Different Private Lenders

When a real estate investor is considering a hard money loan, experienced investors advise borrowers to shop around for investors. Since private lenders are individuals, often the terms of the loan and the qualification guidelines can differ substantially from private lender to private lender. This site offers reviews of private lenders from across the country so borrowers can contact the lender that is likely to meet their needs