Private money lenders make a living by providing loans and servicing those loans to people who need private money (loans made by private individuals.) There are generally two types of private money professionals, direct lenders and brokers. Most professionals in the industry are actually brokers. Some of these people are both direct lenders and brokers. In these cases, the individual usually will fund only one or two small loans each year and works as a broker to those seeking funding for the rest of the loans that come through the door.
Deciding whether to go with a private money broker or a private money lender is much like choosing whether to purchase a property with the help of a realtor or whether to simply go it alone without a professional.
Benefits Of Using A Direct Private Money Lender
The benefits of working directly with a direct private money investor are easy to see: it will be less expensive if you go directly to the source. Brokers are paid for their work by charging points on the loan transaction, often times in addition to the points the end investor charges. Because of this, the more brokers you have in a given transaction, the more you are likely to pay in fees (such as points) to accommodate that cost.
If you have been lucky enough to find a private money investor directly who is willing to fund your particular transaction, you will be able to talk with the investor or lender directly, and will be able to get all of your inforamtion straight from the horses mouth. There are both positives and negatives to this.
By dealing with the direct lender, you can be assured that you are getting your updates and information first hand, and this can allow you to close your transaction with less problems or delays. This is due to the fact that no one knows your scenario in the manner you do, no one else can explain any potential negatives to your transaction better than you are able to, and no one knows the benefits that the transaction will bring like you do. The down side to working directly with the investor, however, is working with the direct private money lender means that your loan either funds or it doesn’t, there are no other options if the private lender turns you down, except to go back to calling around for another direct lender who’s perameters your loan may fit.
Why You Should Work With a Broker
The benefits of using a broker are also straight forward: a seasoned, well-informed, honest broker will have the knowledge of and access to the direct private money lenders and will know where your loan has the best fit. Having a broker work with you will give you the help you need to properly package your loan, discussing with you various information that will help you decide how much of a loan amount you can obtain, and what kind of terms you may be able to expect. A good broker will be able to help you properly package your deal (which is very important) and send it to the most likely private hard money lenders for your particular scenario. Working with a broker will definately reduce the stress and legwork for you, and in general is well worth the additional cost.
At the end of the day, your decision to deal with a good, quality broker or directly with a private hard money investor will likely depend on whether you personally know a direct private money lender and whether you feel comfortable packaging and presenting your funding request directly without professional help.
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