In recent years non-bank lending, also known as private lending, has become a preferred option for borrowers seeking fast approvals for real estate investment loans.
In comparison with banks, private lenders can offer higher service levels, in addition to competitive products with market leading rates and personalised loan packages.
Understanding Private Lenders and Bank Mortgages
The key difference between private lenders in Sydney vs banks involve the source of funding, loan terms, flexibility, and eligibility criteria.
Private lenders can be individuals or companies offering loans outside the traditional banking criteria. Companies like Central Real Capital, use their own capital to lend to borrowers, unlike banks who are financial institutions regulated by government agencies, who offer mortgages using deposits from borrowers or other financial sources.
Banks tend to follow stricter guidelines, typically requiring good credit scores and low debt-to-income ratio. Their approval process is far more stringent and heavily regulated. Whereas private lenders tend to have more flexible qualification criteria. They prioritise the value of the property over the borrower’s financial status. This is why borrowers favour using private lending for real estate acquisition.
Bank vs Private Lenders for Real Estate Finance
When it comes to real estate finance, traditional banks and private lenders tend to be the two most common sources of funding. While each provides funding, it’s important to know the differences between the two.
Banks are frequently harder to deal with than private lenders as they’re subject to strict government regulations and guidelines which often dictate what businesses a bank can lend to and what borrower profiles should look like. Their approval process is usually computer driven with little discretion available to the lender for them to consider specific circumstances of the borrower.
Accordingly, while private lenders are still subject to government regulations and guidelines, they are significantly less regulated. It is generally easier to get approved by a private lender for real estate investment loans than traditional banks. Private lenders take a more common-sense approach to loan applications by understanding issues and overcoming them, often being able to see the bigger picture to the opportunity.
For those looking to immediately invest in a property, private lending for real estate will close your loan faster, with less aggravation to the borrower. This will allow the borrower to grow their business quicker, which makes the extra short-term costs of a private lender worthwhile.
Advantages of Private Lending for Real Estate Financing
There are many advantages to using private lending for real estate loans like:
Loan Types & Purposes:
Private lenders offer faster, more flexible, and customisable loan types for varying purposes like real estate investments, cash injections for your business, and development opportunities.
Loan Terms:
Private lender loan terms are generally short-term, often ranging from 6 months to 3 years and have variable repayment structures.
Approval Process:
Private lenders offer much quicker approvals and funding, sometimes within days or weeks. They focus more on the value of the property (collateral) rather than the borrower’s creditworthiness, making them a more attractive option for those needing to make the most of opportunities.
Flexibility:
Private lenders offer more customised terms based on the borrower’s needs and the specific real estate deal. They can be creative with loan structures, including flexible repayment schedules, higher loan-to-value ratios (LVR), and tailored agreements.
Conclusion: Selecting the Right Lender for Your Real Estate Needs
Selecting the right lender for your real estate needs is a crucial step in the real estate investment process.
First, consider the type of lender that fits your goals – whether it’s a traditional bank or private lender. Private lenders offer more personalised services and competitive rates as well as convenient and fast application processes. Understanding your financial situation, such as the value of equity in your home, will impact on the type of loan, LVR, and interest rates.
Next, compare different lenders based on their interest rates, loan terms, and fees. A lower interest rate from a traditional bank might seem like the best deal, but you should also be mindful of early payment penalties and other hidden fees within the loan documentation. Customer service throughout your loan life cycle is also important; you’ll want a lender who is responsive and communicative, especially as real estate transactions can be time sensitive.
Additionally, it is important to take your time researching and evaluating your options. This can lead to significant savings and a smoother experience.
