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What are private money loans?
Private money loans are short-term loans acquired through private loan lending companies or individuals against property specified by the borrower. In order to understand the process of funding or acquiring a private money loan, you must first need to have an idea of the parties involved in the process and what each of their function is. Acquiring or funding a private money loan isn’t as simple as signing a bunch of papers and shaking hands over it, and involves a great deal of work and consideration.
If you are a borrower, the ideal private money lender will operate in transparency, keeping you aware of all the procedures involved, and the status of the loan as it clears each process. The parties needed to close a private money loan are the borrower, the seller and real estate agents (if applicable), the money lenders, a company providing escrow or settlement services, and the title company. We’ve briefly outlined their functions below.
Parties Needed To Close A Private Money Loan
The Private Money Borrower is the person or a legal representative of the company, depending on who the loan is for, with the authority to make decisions and forward custody of the property against which the loan will be granted.
The Seller, in instances where the borrower needs to purchase the property, is the party the borrower will be purchasing from.
The Private Money Lenders are individuals or companies who provide financial capital against the property investment, based on the value of the specified property or equity you have free and clear on another property. The private money lender is responsible for managing and processing the loan application submitted by the borrower, underwriting to guarantee the property’s safekeeping, and coordinating the funds for the real estate note investment.
The Real Estate Agent is a business entity representing the buyer or seller of a certain property. The agent negotiates the proposals and finalizes the deal on behalf of the party they are representing.
A Title Insurance Company compiles and presents a report detailing all aspects of the collateral property against which the loan will be granted, as well as a background check on the involved individuals (Brad Loans usually handles this part). This reports includes all information gathered on the property through public and county records like ownership records, security claims, and judgements.
An Escrow Company or a provider of settlement services is a neutral intermediary that receives and forwards the funds by the lender, supervises the final steps to ensure all deeds and documents have been signed by all parties involved, and files any documents for local records that need to be filed. In some cases, there may not be a need for this third-party, if the Title Insurance Company or loan servicer has a corresponding department to take care of this process.
The Private Money Lending Process
As the private money lending process begins, it initiates the closing process with it. The private money lenders or the estate begins employing services of the title company and their escrow department, or a third-party escrow company to begin evaluation of the process.
For easy understanding, we’ve bullet-pointed the process below, according to the services carried out by the corresponding companies.
The Title Insurance Company is responsible for
- conducting background checks on seller and borrower
- gathering information on the property from county and public records for ownership and security claims, and judgements
- organizing and presenting an initial report with all the above information, as well as the property’s title insurance offer
Escrow services are responsible for:
- accepting deposits as detailed in contract of purchase
- reviewing documents of all involvedparties and determiningthe individuals or representatives signing the documents
- obtainingsettling amounts for all property claims
- obtainingsecurity deposits, contracts of service, leasestax detailsfor the property and other information to calculate the proportionate division of funds
- coordinating the 1031 process of exchange (if applicable)
- preparingstatements of settlement according to the provided instructions and contract of purchase, and receiving the corresponding loan documents from the moneylender
- coordinating and overseeing the document-signing/loan closingprocess. This can be done either face to face, or separately in different locations and at different times, adhering to local legislations
Closing The Private Money Loan
- The moneylender transfers the funds to the escrow service
- The escrow service documents and files the deed and other documents with the local authorities
- The funds are then distributed by the escrow company to all parties that are supposed to receive them (You)
- A title insurance policy is issued by the title insurance company
An overview of this process reveals that acquiring or issuing private money loans isn’t as easy a process as it is assumed to be by many. The process takes time and considerable effort to reach the final closing process, and reaches its fruition only after the funds have been distributed, and the appropriate documents filed with local authorities.Even after the closing stage where the documents are signed, it takes up to 3-7 working days on average for the funds to be released and distributed to the borrower.
Learn how you can get a private money loan with no money down and no down payment.
