Private Funding Exit Strategy
“A Private Funding Exit Strategy Can Be Key To Attracting The Best Private Mortgage Options”
A private funding exit strategy for a private mortgage is basically a defined plan for repayment of the mortgage at the end of the interest term.
In most cases, private mortgages are only for a period of one year, so the private lender will require an exit strategy to pay back the principal that has been advanced.
And while private lenders mostly make their lending decisions based on the equity in a property and the property’s overall marketability, an exit strategy already in place can many times make or attract more competitive private mortgage funding offers.
For smaller deal sizes, lets say under $200,000, the lender’s exit strategy is typically going to be full repayment from the borrower through the borrower’s own arranged means, or default foreclosure where the lender is taking the property through a power of sale process to get his or her money back.
But as the deal size gets larger, there is more risk to the lender to just rely on borrower repayment or the right to foreclosure to get back everything that’s owed.
This is where a more detailed and prearranged exit strategy can not only attract better private lending offers, but potentially get the deal funded in the first place.
For instance, say that a builder wanted to borrow $500,000 for one year to build two houses that he had already pre sold to well qualified buyers.
This would potentially represent a very solid exit strategy as at the end of the mortgage term, the construction would be complete and the proceeds from the sale of the homes would go directly to the lender to repay the mortgage.
Another fairly solid exit strategy would be where the borrower requires a private mortgage to save the equity in their home. In this scenario, lets say that the borrower has decided at the time of getting a private mortgage that its going to be unlikely that he will be able to arrange an institutional mortgage at the end of the private mortgage term to repay the lender.
So at the time of application for financing with private mortgage investors, the borrower states that immediately upon securing the mortgage, the borrower will put the properly up for sale in order to salvage the equity in the property as soon as possible.
For a private lender, this could once again be a very solid exit strategy as the borrower is going to have a year to market and sell the house through a conventional sales process which should be completed before the end of a year.
Once again, the larger the financing request, the more likely an acceptable exit strategy is going to be required from a private lender to do the deal.
If you’re looking for a private mortgage, or would like to know more about suitable exit strategies that can attract a private lender, please give me a call and I’ll make sure you get all your questions answered.