One of the more common reasons for utilizing a private money lender as a financing resource is because the borrower or borrowing entity has bad or damaged credit that prohibits the borrower from being able to secure residential or commercial mortgage financing from a bank or institutional lender.
Private money lenders are a good fit to provide what we refer to as a bad credit mortgage due to the fact that they are more focused on the equity in the property than anything else.
Put another way, if a private lender can advance mortgage funding where the loan to value on the property is 60% or less after funding, then the 40% equity position provides them with sufficient comfort to fund the deal, even if bad or damaged credit exists.
This is also not to say that a private mortgage lender cannot advance mortgage funding beyond 60% of the property value, but in cases of bad credit, the loan to value ration tends to be lower due to risk and typically falls into the 50% to 65% loan to value range.
There are also varying degrees of bad credit to consider as well which may impact the interest a private lender has in the deal.
For instance, many private lenders will be interested in funding a deal where someone has been recently divorced or lost their job or had some unplanned life event that ended up hurting their credit. They are even going to be ok with a post bankrupt, provided that credit managing practices have improved.
But when you have a very low credit score, and your credit history still shows all sorts of near term late payments, write offs, and judgements, then there will be much few private money lenders that will be interested in the deal, and if they do fund it, the rates are likely going to be higher than for a deal where better or improving credit exists.
So for the wost of credit, private mortgage lenders will still provide equity based loans, but the loan to value available will be lower and the rates higher than if credit was in a better state of repair.
The best way to find private money lenders that place bad credit mortgages is to work through an experienced private mortgage broker who has direct relationships with private lenders that will fund a wide range of bad credit profiles.