First Capital Trust Deeds works with institutional lenders such as regional banks along with trust deed investors to originate bank financing and private money / hard money loans for our commercial real estate investor clients. Both institutional and private money lenders offer commercial mortgages ranging from 12-month bridge loans to 5-year fixed loans with a 30-year amortization schedule.
The difference between institutional and private lender is speed of closing and pricing.
Institutional lenders usually take 30-60 days to close a loan, whether it’s a 12-month bridge or 5-year fixed rate loan. The banks require full appraisals, environmental reports, guarantor’s (borrower) financials, etc. In turn, banks offer better pricing with interest rates starting in the 4.00% range and origination points starting at 1.50%.
On the other hand, private money and hard money lenders can close 12-month bridge loans in as little as 48 hours days, forgoing the appraisal, environmental report (sometimes), and the detailed financial underwriting. In exchange for the rapid turn times on equity-based loans, private money lenders charge higher interest rates starting at 8.00% on bridge loans and limit the Loan-To-Value (LTV) to 65%.
For real estate investors interested in commercial financing, it’s important to weigh the trade-off between lower pricing with bank financing versus speed of closing with private money lenders.