How brokers can determine if a private money loan is right for their client

This article was provided by RCN Capital

For every broker in the real estate industry, priority number one is finding the best option for their client when they need financing. The long-term financial health of a property within an investor’s portfolio starts when the broker and their client are prospecting for the right fit for the deal.

One of the most appealing choices that brokers should be providing for their clients is a private money loan. Typically, a private lender is well-positioned to service an investor client based on the guidelines they have in place and the loan options they offer. Brokers can become an asset for their investor clients if they are consistently finding the best deals. Working through a checklist of the client’s overall objectives for the individual loan as well as their portfolio can be an easy way to determine if a private money loan is right for them.

Investment property financing

One of the first questions a broker should ask their clients is whether they are planning on purchasing a home as their primary residence or if this is going to be an investment property. Once a broker knows the answer to this question, they can lock in on a few options that best suit their client. Private lenders are typically looking for investment property transactions to fund, but different private lenders specialize in different property types. There are lenders that specifically deal with commercial buildings and large multifamily properties while others specialize in ground-up construction or fix and flip deals.

This is where a broker can utilize their connections to point their client in the right direction. Bringing the right deal to the wrong lender can end up backfiring and lead to delays and even failure to close a loan. Brokers that organize and prioritize the right private lender for their client when they are investing in real estate are game changers. Once it’s determined that a private lender is the right fit for a client’s investment property, there are other factors that come into play that only enhance a client’s experience.

Less stressful approval process

Another reason why a private lender can be the preferred fit for a broker’s client is the approval process, which is much less stressful than conventional lending or a loan from a bank. If a broker knows their client is considered borderline in terms of getting approved, finding a private lender that allows for ease of approval while also ensuring the deal benefits all parties is a must.

It’s important to reiterate to a client that private lenders place less emphasis on the individual and focus more on the property and the deal itself. However, additional aspects that can lift stress off the potential investor may include lower FICO score requirements, no annual income statements or tax returns, no proof of employment, and even no debt-to-income requirements. A broker should be aware of all the benefits a private lender offers their potential client and be able to articulate why this option should be their first.

It can be easy for a real estate investor to get discouraged if they continually find properties but can’t get approved and fund the deal. If discouraged investors are leaving the industry, that means brokers have less opportunities to foster relationships and build wealth with potential clients. For this reason, it is imperative for brokers to find ways to get their clients approved, and working with a private lender is a surefire way to make that happen. 

Customizable/flexible loan options

Once a borrower is getting approved more frequently by private lenders, a broker can start to familiarize their clients with all the product offerings at their disposal. With this knowledge, a client can expand and diversify their portfolio as well as learn their preferences as it pertains to the different loans they close with a lender.

Private lenders can usually offer customizable options for each loan product and can even be more flexible in different loan scenarios to ensure a loan closes. Some of the customizable options include adjusting prepayment penalty periods, adding interest only periods, and choosing the Loan to Value total to manage the payoff amount back to the lender. Private lenders try to stress these options, so their clients know they don’t have to shop around to get the exact deal they want.

Additionally, if a broker and client work to build a consistent flow of business for a private lender, that relationship begins to matter more. Different strategies can come into play or exceptions can be made by that lender to get a deal across the finish line.

A broker and their client should always remember that these private lenders do have guidelines so some instances may be a hard no, but there are certainly many others where a workaround is possible.

Reliable product experts and customer service

The final phase of determining whether a private lender is the best option for a broker’s client is actually up to the lender themselves. At this point, it’s clear through product specialization, ease of approval and customizable and flexible loan terms that private lending is one of the most viable options if a broker has a client that invests in real estate in any capacity. However, narrowing down which private lender will offer the best service requires a little bit of trial and error.

Any reputable private lender should have loan officers or account executives that are well versed in the loan products they are offering. Questions should be answered in a timely manner and these employees should come across as experts. Confusion and delays should be viewed as a potential red flag if loan details and information about products are discussed with a lender. Expecting them to have all the answers regarding industry-wide questions or issues is a lot to ask, but for their products specifically there should be a level of competency in place as a baseline.

Customer service is paramount in this business, and a private lender should always be stressing this to their LOs/AEs. It should only take a few conversations to determine whether a lender prioritizes customer service, and a broker should not settle for anything less than the best for themselves and their clients. Is the private lender proactive instead of reactive? Are they willing to suggest customizable/flexible options to get a deal closed? Do they care about the people behind the deal rather than just the deal itself? These are all questions a broker should be considering when grading a private lender’s customer service.

Follow the checklist

With this checklist at their disposal, brokers should be able to determine if a private lender is the right fit for their client. Once they determine that a private lender is the best option, brokers must vet numerous lenders and find the optimal lender for that specific deal. It’s important to remember that these private lenders are not one size fits all, so finding a few depending on what your clients’ goals or preferred property types are can be a big help when making these important decisions. However, it is worth remembering having a client who needs a loan for an investment property, less stringent approval guidelines paired with customizable, flexible loan options and trustworthy product experts is a perfect fit for private lending.