What is a private loan? It is a loan made to a real estate investor that is secured by real estate. Private Loan Investors are given a first or second mortgage that secures their legal interest in the property and secures their investment. This is NOT the same as high Loan-To-Value (LTV) ratios the banks and savings and loan institutions make on homes. We offer very low LTV ratios to our Private Lenders to increase security of the loan. Our standard LTV ratios are under 75% of the value of the property securing the loan and frequently as low as 60% to 68%. This means additional security on the investment. For example, if a property is valued at $100,000, our Private Lender will never have to loan more than $75,000 on the property. That’s a 75% LTV ratio. This is obviously a much safer approach from that taken by conventional lenders. These banks get into trouble because they make loans at an 85%, 90%, or even 100% LTV ratio leaving them no equity for transfer costs, if they are ever forced into a position where they have to take back the collateral property.
You as a lender will never lend more than 75% LTV. As a lender, it is in your best interest to minimize risk and maximize return and this is why a loan should never be made without a 25% safety net.