Purchasing property with a private lender, how does closing work?

Question

When you utilize private lending to purchase a property, do they as the private lender bring the money to closing in the form of a loan or do they cut you a check?  Not even sure I used the right terminology here. Thanks for any help.

Jonathan Taylor · Answer

@Dennis Kimzey any transaction should use title and escrow. Title provides and protects you in term of chain of title, escrow is the trust and money holder of the transaction. All monies for the transaction are put into escrow, labor and services are paid from that account, then the funds are disbursed to the parties once the note is recorded.

Matt Devincenzo · Answer

Based on the terms you're using, they would send funds to escrow/title and you would execute a promissory note and mortgage/deed of trust. This would create a 'loan' of their cash to you....the promissory note is you promising to pay them back, and the mort/DOT is recorded so that 'the world' knows they have a loan on the property that needs to be repaid. Really there's nothing different between a private lender and a bank lender as far as what happens. The difference is just in what they want/need to document in order to lend you money.

Darin Mellinger · Answer

All of the last few posts are definitely good advice.  The closing process with a private lender is not much different that that with an institutional lender.  The private lender will require the borrower's signature on several disclosures and affidavits, a promissory note and a security instrument.  All funds should flow to and from the 3rd party closing agent.  (I would certainly be cautious with any suggestions of anything to be done directly between parties).

Dylan M. Davis · Answer

Don't ever work with a private money lender who says they're going to wire you funds.. 99% of the time  they're scamming. A real lender will always close 3rd party.. No one should be cutting anyone a check. If a lender ask for money upfront towards the down payment that's also a scam.

Tiffany Murokozi · Answer

Okay thanks. Asking because my savings at this point is basically non existent. My husband and I recently purchased our primary residence and it took all of our savings. So I am not sure if we need to wait to get into REI, or is there a possibility to still jump in with very little (less than $5k) of our own money? Specifically speaking about flipping for now, until we build savings.

Matt Devincenzo · Answer

@Tiffany Murokozi EMD required doesn't have anything to do with your lender, that's a contract issue on your PSA with the seller. As far as DP that's a lender negotiated item. Banks have their policies on minimum DP;  private lenders can do what they want and set their own minimums...I recently funded a purchase for my Mom. I would have been fine loaning the full 100% price for her if I had the funds available. I ended up funding ~90% and she funded the rest, the only reason being I needed to keep some liquidity for myself.

Tiffany Murokozi · Answer

Do they require a down payment? Or will earnest money be required from me prior to closing?

Dennis Kimzey · Answer

That makes a lot of sense.  Thank you so much for your help on that.

Purchasing property with a private lender, how does closing work?

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