STRATEGY
LENDERS
Which Type of Lender Is Right for You? AN ARTICLE SERIES ON NAVIGATING THE PRIVATE LENDING WORLD
by Damon Riehl
L
enders come in all shapes and sizes. Investors often don’t have
to include long-term rental loans and work generally as correspon- dent lenders for those products. For the long-term rental products, they lose some of their nimble nature as they are making loans that must be approved by the direct lender they are aligned with. CORRESPONDENT LENDERS This is one of the fastest-growing areas of private lending for invest- ment properties. Loan buyers have enabled these smaller correspondent lenders to represent themselves as the direct lender to borrowers. These lenders can be local, regional, or national. They are smaller lenders that generally have graduated from being a mortgage broker or hard money lender and aligned with the loan buyer or direct lender. They rely on their loan buyers or direct lenders to approve the loan prior to closing. This can cause some late negative surprises that disrupt a normally smooth closing. Their pricing is good but generally not as competitive as a direct lender. They generally do not service loans as they are sold imme- diately to the loan buyers. Direct Private Lenders: They gen - erally are medium or large in nature and can be local, regional, or nation- al. These lenders have full under- writing decision-making authority. When an exception is required, many
can make the decision in-house, versus needing to send it to the loan investor. They have short-term fund- ing sources in place to hold short- term loans for a period of a few months to up to three years. They also can hold long-term loans for a few months prior to selling that loan to a loan buyer. Their pricing is gen- erally the most competitive for both real estate investors and commercial mortgage brokers they serve. Some direct lenders even do their own loan servicing. Lenders such as Silver Hill Funding and Constructive Loans have loan servicing companies that allow a borrower to stay with a consistent servicer throughout the life of the loan. AGENCYLENDERS These lenders offer the Fannie Mae/Freddie Mac non-owner-occu- pied loan options. These rates are generally lower than those offered by Private Lenders but have some hurdles that need to be addressed to qualify. First, investors are allowed to have no more than 10 properties financed. Second, the loans require full review of personal income and debts to determine if you qualify. It is not based solely on the income of the property and may require a review of tax returns to determine qualifica - tion. Third, loans must be in the bor- rower’s personal names and not in a
a solid understanding of the different types of lending entities, how they are structured, and the products they offer. As founder of a national com- mercial mortgage brokerage that works with most of the top private lenders serving the investment prop- erty lending market, I have experi- enced this firsthand. Here is breakdown of how the various types of lending entities are structured to serve real estate investors, organized based on how they do business. HARDMONEYLENDERS These lenders are generally local and can move quickly, but usually charge the highest rates and fees. However, they are equipped to make quick decisions and provide deal certainty. This is very valuable to investors who need to move quickly and don’t mind paying more for deal certainty and fast execution. They lend funds from investors or bank credit lines and the loans are short term (6-36 months is common). They specialize in fix & flip, construction, and bridge loan products. Some can handle a diverse set of property types, including land, single-family, multifamily, mixed-use and commer- cial real estate. Some hard money lenders have extended their products
62 | think realty magazine :: november 2021
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