I am new to BiggerPockets and still exploring the site, but I wanted to post my situation for feedback.
My wife and I (both 27) are seeking to become first-time homebuyers and have been trying to buy in a particular neighborhood of Sacramento, CA, since March of this year. I have stable employment and we both have strong credit (in the high 700s). We have been through underwriting and are approved for a conventional loan.
Unfortunately, the area that we hope to call home is currently flooded with investors and cash and our strong conventional offer cannot compete with cash offers that have no contingencies.
Recently, a fixer went on the market for less than $100k (it is in an area where a non-fixer would generally be worth $200k+). We have the cash available to pay for more than half of the asking price (that would leave us without cash to renovate, though). I am not familiar with private lending, but I thought I would look into it as it seems to me that a good deal could be had all around if a private investor was interested in helping us to purchase the home and finance the necessary renovations, and for us to pay a monthly mortgage to the private investor.
At this point, I have not, of course, had an inspector out to the home and do not know how much renovation it requires. From the photos, I have a hard time believing the renovation work would run more than $50k, but even if it ran much higher, the mortgage would not be an issue for us.
I welcome feedback from anyone familiar with this sort of thing, as I do not know whether this is feasible.
I haven't worked with private money; but I suspect you're going to have a hard time finding a private lender offering terms similar to a regular motgage. Most private lenders will want returns way in excess of that (think double digit interest rates), unless it's family or something along those lines.
In order to make the deal work for them, you will want to structure it with an exit strategy that allows some way to convert the loan into a regular mortgage, allowing you to pay off the high interest private loan.
Basically, you'll want to put together a deal just like you are doing a flip. The difference is that you'll be the buyer of the flip. One way would be to do a joint venture with another flipper where you both put in cash and split the profits after 'selling' the house back to your self. (Either a refinance, or an actual sale dependingo on the partnership is setup.) Another way is to do the flip yourself, where you take out a hard money loan, with the expectation of paying very high interest for 6 months; during which time you fully complete the rehab. Then you take a morgage on the property to pay off the loan.
In both situation; you'll need to make sure you qualify for the new mortgage amount.
@Samuel Greenlee The best tool you can have against a cash offer is to have a Fully Approved Loan. This is where your loan goes through underwriting (with the address as TBD) and you are approved for a loan amount up to $Xx and up to Yy% interest rate. This is not the same as a preapproval, where only the banker reviews the documents. Being a banker, I can tell you that I would like to do your loan, but the final approval is in the hands of the underwriter.
Banks will charge you a small fee for this (as we do), but this is credited back to you at closing. So as long as you are serious about the loan you are not going to loose any money.
Hope this is helpful. PM me if you have additional questions.
Since it's a home you plan on living in and not flipping I'd recommend just being patient and use your conventional loan unless you know someone who can loan you the money on more favorable terms than the traditional hard money lender.
What area in Sac are you looking in?
Welcome to the site @Samuel Greenlee . A "private lender" is usually someone you personally know (i.e. parent, friend, etc) who is willing to loan you the money. The terms could be anything you both agree to. A "hard money lender", on the other hand, is someone who is in the business of loaning money - usually to investors for a short term. It is highly unlikely you will find a hard money lender willing to loan money for an owner-occupied property as most don't do that.
Have you tried offering over asking price? Have your mortgage broker write a letter saying it can close fast. Use a higher escrow amount and shorter DD period
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