How to structure a private money loan?

Question

Hi everyone!

I’ve got a private money lender (a friend of mine).

I would appreciate if anyone can explain me how does it work in 2 different cases (regarding what should I tell the title company? What documents do I need to give or sign with the lender? Where does the terms of the loan written- is it also with the title company?)-

1. Purchasing a new property with a private money lender.

2. Getting a loans from a private money lender when I already own the property (paid with cash).

Thank you very much for your help!

Chris Seveney · Answer

@Niv Nissim

Yes there is a lot of paperwork involved

Check out some of don konipol posts on this

If you have never lent before I would be very cautious as you need to do an excellent job underwriting the borrower

Chris Seveney · Answer

Lender drafts everything, typically they have an attorney and title company handle it all

Chris Seveney · Answer

@Niv Nissim

Sorry I read it wrong you are the borrower I thought you were doing the lending

Private lending and conventional lending are pretty much all the same documents

The difference is who lends the money.

The terms are created by the lender and realize private lending terms will typically be significantly more expensive than traditional lending

Edwin Epperson · Answer

@Niv Nissim that's great you have F&F (Friends and family) willing to make a loan to you.  As Chris stated the lender (you F&F) is responsible for underlying the borrower (you) and shifting risks from themselves to the borrower (you).  Your doing the right thing by seeking how to protect them, but there is more to making a risk mitigated loan than just having a Note and a recorded security instrument (Mortgage "MTG" or a Deed of Trust "DOT").  If your serious about having your F&F protected link them up with a RE Attorney who will look out for their interest, not yours.  What this means is you potentially will be paying more for the use of their funds, though not necessarily in the APR.  The attorney will most likely advise them to get a lenders title policy, as well the cost of the attorney will be paid by you.  Also they should force you have adequate property insurance (that you have to pay for) that names them as Mortgagee/ Loss Payee, so that they are paid back their principal in case of a loss.

Niv Nissim · Answer

Yeah that’s what I thought..

Thank you!

Who is responsible for drafting the agreement? Me or the lender? Or is it up to our decision?

How to structure a private money loan?

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