While both banks and private real estate lenders can help a buyer finance an investment property, they have different requirements and approaches to lending. The best choice is not only the one that is willing to finance a property at the best rate, but also one that can be flexible and accommodate the needs of a borrower. Learning more about the ways lenders approach a loan can help buyers understand their options.
Banks tend to prefer conventional owner-occupied residential loans and charge lower interest rates. A hard money lender has the ability to issue timely loans in many situations and their biggest factor is the value of the asset. Banks need to be competitive with one another to attract business; a private real estate lender is more flexible and has their agenda when it comes to financing. These different approaches extend beyond interest rates and may also impact other factors of your transaction.
Banks and private lenders also differ in their approach to a property’s Loan to Value (LTV) ratio. A private lender often offers an LTV of up to 70 percent; banks can range from 60 percent up to 90 percent. Different lenders may calculate LTV differently using before or after repair figures, so examining all options before signing on the dotted line will yield the best results.
The amount of time to close a loan can vary between banks and private real estate lenders as well. A bank may take up to 90 days to close, while a private lender has more flexibility and often has the ability to close fast within a few days. A buyer with property that is in great shape may be able to get a great deal at the bank. When a property has challenges or the transaction is less traditional, a private hard money lender may be the best option.