We all know private lenders and conventional lenders have some significant variation between their underwriting techniques. What are these differences? How does that impact the products each can offer? And how can you use these different products to your advantage?

Generally speaking, conventional lenders can offer lower rates and 30 year loans, but have strict borrower qualifications and take several weeks (or months) to close the loan. On the other hand, private lenders have higher rates and shorter term loans, but have significantly looser borrower qualifications and can close in 14 days.

Understanding the Basics

Conventional Lenders: Typically banks or credit unions, conventional lenders offer mortgage loans based on stringent regulatory standards. Their underwriting process involves detailed scrutiny of the borrower's financial health, including credit score, income, and employment history. Appraisals are mandatory to determine the market value of the property.

Private Lenders/Hard Money Lenders: In contrast, private lenders and hard money lenders are often individuals or companies that offer loans based on the value of the collateral rather than the borrower’s financial history. This type of lending is asset-based, focusing primarily on the property's value and potential.

Key Differences in the Underwriting Process

1. Collateral Evaluation

• Conventional Lenders: Require a formal appraisal to determine property value, a time-consuming and costly process.

• RSR Lending: We use our extensive industry experience to quickly assess the value of the collateral, speeding up the loan approval process and reducing costs for borrowers.

2. Character of the Borrower

• Conventional Lenders: Focus on credit history, income stability, and employment record.

• RSR Lending: We take a holistic view, considering the borrower’s overall situation, including their experience in real estate and their track record in managing similar projects.

3. Capacity of the Project

• Conventional Lenders: Conduct a detailed analysis of the project's feasibility, which can be cumbersome and time-consuming.

• RSR Lending: We evaluate the project’s potential based on realistic market projections and the borrower’s past performance, enabling quicker decision-making.

4. Credit of the Borrower

• Conventional Lenders: Heavily rely on credit scores, which can exclude many potential borrowers.

• RSR Lending: We consider factors such as the borrower’s current financial health and the property's potential, offering a more inclusive approach.

The RSR Lending Difference

With over 25 years in the valuation industry, RSR Lending has a streamlined underwriting process that does not require appraisals. Our approach speeds up the lending process and provides a hassle-free experience for clients. We are experts in our local markets, have long standing broker relationships, and

When Private Money is Best

Example 1: Borrowers with Low Credit

Borrowers with a low credit score may face rejection from traditional lenders despite their stable financial position and sound investment plan. Private lenders like RSR Lending offer a viable solution by focusing on the collateral, the project’s potential, and the borrower’s experience.

Example 2: Purchasing Investment Property Without Income

Investors looking to purchase properties that do not yet generate income, such as vacant buildings or properties needing significant renovation, often struggle with conventional lenders' requirements. Private lenders focus on the property's future potential, allowing investors to secure financing for high-return projects.

Example 3: Speedy Closures

In competitive markets, time is of the essence. Private money can close much faster than conventional lenders because of a commonsensical underwriting process that doesn’t require appraisals. This is a significant advantage for investors who need quick access to capital to seize opportunities before they slip away.

Conclusion

Private lenders and hard money lenders like RSR Lending provide a streamlined and flexible underwriting process. We focus on the collateral, the character of the borrower, the capacity of the project, and the borrower's credit. Our expertise in property valuation allows us to forego traditional appraisals for conforming properties, expediting loan approval and reducing costs.

For investors seeking quick, flexible, and reliable financing, RSR Lending is a trusted partner with local expertise committed to helping you achieve your real estate goals.