PrivateLending

PRIVATE LENDING – FOR LENDERS

 

About Private Lending:  Lenders Perspective


Please note this is just a guideline and not an all-inclusive instruction.


A special note:

Private lending is mostly equity lending.
Equity lending means that there is enough money on the borrower’s property to secure the private loan.

Please note there are risks involved in private lending.

All private lending or borrowing from private lenders is at the sole and absolute discretion of the private lender and the borrower.

 

Recommended Steps to be taken by the private lender:

  • All private loans must be secured by registering or Real Estate Property.
  • The total of all loans on that property does not exceed 80% Loan to value
  • The value of the property is determined by a licensed local appraiser
    • Sometimes an opinion in value by a licensed local realtor is also used
    • Also a Preview (Teranet) estimated value is also used
    • But it is highly recommended to ALWAYS use  a licensed local appraiser
  • Make sure that the borrower’s property taxes and condo fees are paid in full or in good standing.
  • Make sure there are no pending work orders from the city or the condo
  • Make sure the property is in good repair
  • Make sure there are no judgments/Lawsuits  against the borrowers
  • Make sure to check all the debts (Liabilities) of the borrower and to make sure they can re-pay the loan
  • A credit check must be done to determine the creditworthiness of the borrower
  • Borrowers Income must be determined to see if they can pay the loan
  • Borrowers Employment:
    • Lender Must Verify the borrower’s employment
    • The lender must see that the employment has been with the same employers for the last 2 to 3 years
    • The Lender must see how often the borrower changes their jobs
  • Borrowers References:
    • The lender must call the borrowers references ( 3 Work and 3 Personal references )
  • An exit strategy must also be determined by the lender or shown by the borrower as to how they will pay off the loan
  • The Lender must make sure that the loan is legal and as per the governing laws
  • The Private lender must go to their own lawyer.
  • The Private Lender lawyers must draw up all the terms and agreements.
  • The Borrowers must go to their own lawyer.
  • The Borrower’s lawyer will explain the loan terms to the borrower:
    • The term of the mortgage
    • Is it renewable or not renewable after the term
    • Missed payment charges
    • Lender’s Administration charges levied for missed payments
    • In the event of nonpayment /default, the entire loan is to be paid off immediately
    • The monthly payments of the loan
    • The interest rate of the loan
    • End Of term loan payout amount
  • Fees/Rates:
    • The private lender will charge a retainer fee at the very beginning to guarantee the funds ( $500 approx)
    • The Private Lender will charge a Lender Fee ( Varies from 1 % to 2.5%)
    • If the loan is originated through a mortgage broker, the mortgage broker will charge a mortgage broker fee
    • The private lender will charge an annual interest on the loan  ( Approx 13% )
    • The loan is often an interest-only loan
    • The borrowers must pay out the entire loan borrowed at the end of the term

 

Disclaimer:  The writer of this article, Dawson Pereira, takes absolutely no responsibility or liability for any losses arising from private lending.
The above article is just a guideline and not an all-inclusive instruction manual.