Negotiating with Private Lenders

Negotiating with Private Lenders

0 Flares Facebook 0 Google+ 0 LinkedIn 0 Twitter 0 0 Flares ×

What is a Private Lender?

A private lender is someone who lends you the money to buy your real estate, with the money loaned coming from the lender’s private funds. Your rates will be higher, but your terms for the loan may be better given your financial situation. If you are buying foreclosure properties for investment purposes, a private lender may be the only one who will loan you money for this riskier purpose. For example, the private lender may be more willing to make the loan even if you are putting no money down or your credit history is not perfect.

The biggest advantage of private lending is the minimal approval process and the speed with which you can get an answer. You also don’t have to pay a loan origination fee, or points.

There is no limit to the number of mortgages you can get from private lenders, as mortgages through private lenders don’t show up on your credit report. But you should expect to pay a higher interest rate for a mortgage from a private lender than you would for one from an institutional lender.


Negotiating with a Private Lender

Private lenders are typically concerned with retirement income, taxes, or ways to defer income. Spend some time talking with your lender to get a handle on his/her financial objectives. You cannot be creative about a financial solution that benefits both of you until you understand your lender’s fears and goals.

On the other hand, if your private lender is a family member or close friend, personal relationships may be at stake and patience may have worn thin. It’s your responsibility to take charge of the situation and defuse problems before they get out of hand.

Most private lenders have never confronted the prospect of foreclosing and probably won’t know exactly what’s involved. Some private lenders won’t use attorneys, preferring to handle it themselves. You may need to explain how a foreclosure works. Start by describing or reminding your lender about the high costs of foreclosure, including lost interest income and potential losses when reselling foreclosed property.

Private investors in real estate. Occasionally, private lenders are as sophisticated as institutional lenders (if not more so), and hold large portfolios of real estate loans. If that sounds like your lender, you should treat them similarly to an institutional lender.

Here are several options for negotiating an end to the foreclosure with a private lender:

  • You resume making your scheduled loan payments and agree that the arrears will be paid back as a balloon payment at a later date.
  • You “rollover” your loan into a new longer-term loan, which is also secured by your property.
  • If your monthly payments were consistently late, you can volunteer a late fee (if your mortgage or promissory note does not call for one) or a security deposit.
  • Although not necessarily a good move, you could offer to increase the interest rate and/or the amount of the monthly payments.
  • If your private lender is concerned with a large financial commitment (such as taxes or college tuition), you can propose to increase the monthly payments to cover her commitment.

If all else fails, an emotional appeal may work. Most individuals (or their spouses) will go out of their way to spare a family from losing their home.

If you are ready to sell your home quickly, White Sands pays cash for homes in any condition. Contact White Sands today to see how they can help.

Leave a Reply

0 Flares Facebook 0 Google+ 0 LinkedIn 0 Twitter 0 0 Flares ×