Correspondent Lending for Private Hard Money Lenders & Brokers

There are now several private lending companies in the market that offer a Correspondent program to fund private/hard money loans, by partnering with loan originators. The term correspondent is not as well defined in private lending as it is in conventional lending. In the private mortgage world, it’s also referred to as table funding. The key difference from the conventional correspondent lending is the correspondent partner does not need to use their own money to fund the loan.

The expansion of correspondent programs in private mortgage lending started in 2018. The increased competition for deal flow spurred this creative way for lender to get more deals. The companies offering this program are typically national lenders with a large operation that also originate loans themselves. They already have a back office and efficient system to fund loans in multiple states. Some of them offer a white label solution in which a separate entity has been set up for closing, so that the lender’s brand is masked. Other lenders simply offer lower pricing for loan originators and call it a correspondent program, or table funding.

How it typically works:

  • Loan Originator goes through approval process
  • Originator advertises Correspondent loan program to their clients as if it were their own
  • Originator presents deal to Correspondent
  • Correspondent evaluates loan request
  • Originator issues a term sheet to Borrower without reference to Correspondent
  • Correspondent does not communicate with Borrower
  • Correspondent funds the loan and retains servicing
  • Originator maintains relationship with Borrower

Correspondent lending is typically offered for residential investment and multifamily properties. However, there are a small number of lenders offering this program for commercial real estate – office, retail, industrial, assisted living facilities and others.

Compensation

Origination Fee
Most private lenders that offer a correspondent program will charge an origination fee. We’ve found that amount to typically be in the range of 0.50 to 1.25 points. The loan originator can add their origination fee on top of that, and there may be limits. The lender may not like to see the total origination fee being too much higher than what they charge.

Interest Rate
The interest rate spread is what makes a correspondent program attractive. A loan originator can earn a rate spread for the duration of the loan and not have to handle the loan servicing.

Additional Fees
Some Correspondents offer the opportunity for the loan originator to earn a spread on additional fees like credit reports, background checks, and appraisals.

An Alternative to Brokering

Many mortgage brokers that have a correspondent relationship for private lending are advertising themselves as a direct lender, which may give them more credibility with their clients and give them an edge over their competition. This not necessarily good for other private lenders in the market, but all lenders may want to consider forming a correspondent relationship to monetize good leads that they cannot fund in-house. Some private lenders only lend in one particular region. If they get a lead for a deal outside of their lending area, they can use a correspondent to get that deal funded, without risking their own capital.

Lenders Offering a Correspondent Program

Our site has a Capital Directory which includes institutional note buyers, capital advisors, and correspondent programs. Below are a few of the companies that have set up a correspondent lending program:

Contact us if you have any questions about these companies or private mortgage correspondent programs. We will continue to add more companies to our Capital Directory and make an effort to maintain a database of many capital providers in the private lending industry.

Credit and Financial Requirements for Private Mortgage Loans

Private and hard money lenders generally do not have a lot of requirements when it comes to credit history and financial documentation. Equity is the primary factor in a private lender’s decision to fund a loan. For a purchase, how much equity (or cash) is the borrower bringing to the closing table. For a refinance or cash out, is there a sufficient amount of equity (35% for most private loans)? For a residential fix & flip, will the after-repair value result in at least 35% equity, and how much is the borrower contributing to the project?

That said, some lenders do have a minimum credit score requirement. Here on PrivateLenderLink.com, every lender must indicate their minimum credit requirements, if any. Even if the credit score is not a factor, lenders may check a borrower’s credit report to make sure there is no fraud, judgements or liens which may affect the lender’s security.

Many private lenders will ask for 3 months of bank statements to make sure the borrower has enough money to pay any expenses required to operate the subject property. For a commercial property, the lender will want to see a rent roll to make sure the income is sufficient to make the interest payments. For a rehab fix & flip project, a lender may be funding most of the project costs, but they wants the borrower to have some cash in the bank in case the project goes over budget.

We’ve seen some lenders use the borrower’s credit score to determine the interest rate and fees. Regardless of the loan-to-value, a lower credit score may give a lender a reason to charge a higher interest rate and additional origination fees.

Private Money for Land Loans

The number of private lenders offering loans secured by land is very limited. The ones that do consider land will be very conservative on the loan-to-value, typically no more than 50% LTV or 50% LTC (loan-to-cost). And the interest rate may be much higher than loans secured by improved property since the risk is so much higher.

Why Won’t Many Private Lenders Consider Land?

Private lenders always have to consider the worst-case scenario when evaluating a potential loan funding. That worst-case scenario is having to foreclose and own the subject property. So a better question may be: “Why would a lender not want to own land?”

  • Difficult to Sell
    Land is the least desirable type of real estate. Even if the asking price is 50% of the value, there are not many buyers out there for unimproved real estate.
  • Lack of Income
    Most land does not produce any income. If a lender is not able to quickly sell the property, they will have to hold it for a long term while having to pay property taxes and other expenses.
  • Lack of Development Experience
    Even if the land has entitlements and can be developed, a lender may not have the expertise or experience to continue the project.

Lenders that do consider land may only consider certain types of land:

Urban Land: Located in a heavily populated area
Suburban Land: Located in a moderately populated area
Rural Land: Located in a small town or remote area
Raw Land: Has no utilities
Agricultural Land: Used for operating an agricultural business
Recreational Land: Used for a sporting or recreation business
Timberland: Forested property

Entitlements
Some lenders will only consider land that has entitlements. This makes the land more marketable in case the lender has to foreclose and ends up owning the property.

Cross Collateralize
Some lenders will only consider land if the borrower has another investment property, which is not land, that they are willing to use as additional collateral.

Here on PrivateLenderLink.com, all lenders that consider land as collateral have to specify their criteria for lending on land, including the type of land, maximum LTV, and other guidelines. On any of the search results pages, use the Property Type filter at the top and select ‘Commercial Land’ or ‘Residential Land’ from the drop-down list.

Fees Charged for Private Mortgage Loans

Most private and hard money lending companies do not charge any upfront fees prior to funding a loan, especially for residential properties. However, we have seen some private lenders charging various types of fees prior to funding, and in many cases it shouldn’t be a deterrent. Some fees are reasonable or common for private lending, and every lending company has their own policies on this matter. Upfront fees for commercial real estate are typically different than residential property.

We require all lenders on our platform to indicate which fees they charge, and whether the fees are charge before closing. You can find this information on each lender’s profile.

Below are some of the types of fees we’ve seen lenders charging prior to funding short-term private mortgage loans…

Appraisal Fee
Many private and hard money lenders will not require an appraisal, but some do. If an appraisal is required, the fee is typically paid directly to the appraiser.

Deposit
Deposits are more common for commercial real estate bridge loans, but we have seen some private lenders requiring a deposit for a residential property loan. Most lenders who do charge a deposit have decided that they are going to fund the loan, but they want a commitment from the borrower. This may be completely reasonable because a private lender may spend a lot of time and effort to complete the process of funding the loan. It would be a huge loss for the lender if the borrower decided to back out of the deal.

Site Visit Fee
For private lenders who only lend in one single market will typically visit every property they fund and meet the borrower as well, without charging any sort of fee for their time and travel. We have seen some private lenders who lend throughout the United States, and they still need to visit the property. This is more common in commercial bridge loans, and sometimes the site visit fee is included in the deposit, if applicable. Most residential property lenders that require an appraisal will not need to do a site visit. We’ve seen site visit fees range from $500 to $3,000.

More info about other types of fees will be added soon.

Private Lending for Owner-Occupied Homes

Most private lenders will not consider a borrower’s primary residence, or a vacation home, as collateral for a private mortgage. If a borrower has a 4-unit residential property and lives in one of the units, this is still considered as owner-occupied, and private lenders won’t touch it. The main reason is government regulations. Private lending is really just for investment real estate.

There are some exceptions, and there are also some alternatives to getting a home loan from a bank. For private lenders, the purpose of the loan is more important than the occupancy. If a borrower owns a business and needs to take equity out of their primary residence to use for the business, there are some private lending companies on our platform that will provide a loan in this situation, if the property is in California. Another scenario acceptable to some California private lenders is if the loan proceeds are used to purchase an investment property. Some private lenders offer “residential bridge loans” which is used if a borrower is purchasing a new primary residence and needs to use the equity from their current home which will be sold shortly after the closing of the new home. The loan term for this situation is typically 11 months.

We have only one lender on our platform that offers consumer-purpose owner-occupied private money loans, but only in California: Pacific Private Money.

If you are having trouble qualifying for a mortgage from a bank or institutional lender, we have a few companies on our platform that offer “non-prime” mortgages which is slightly more expensive than a bank, but they can accommodate borrower with lower credit and challenged financials. Nationwide Mortgage is a good option for loans in CA, FL, OR, VA, CO, WA. Citadel Servicing Corporation offers non-prime mortgages in many states.

100% Financing for Private and Hard Money Loans

Private Lender Link has a limited number of resources for property investors to find lenders that provide 100% financing (no money down) for real estate deals, or anything more than 90% loan-to-cost. However, we do have a few options to recommend and hope this article provides some insights into private lending and points you in the right direction.

100% Financing is very rare in commercial real estate deals. It is much more common in residential real estate investing, and more specifically for fix & flip deals as opposed to long-term rentals. If the plan is to sell the property in a short period of time, a private lender is going to be more willing to provide the loan since the “exit strategy” is clear. The majority of private lenders that will fund the entire purchase and all the rehab costs for a project are local individual investors who are willing to bear the high risk (for a high reward) and may be prepared to take over a project in case the borrower/sponsor does not perform. It’s essentially a joint venture, and the lack of equity (cash) a borrower brings to a deal will typically mean less profits when the property is completed and sold.

Most private lenders who do provide 100% loan-to-cost will only do so for experienced real estate investors. New real estate investors with no experience and no money to put down will have a lot of difficulty finding a private lender.

On our site you will find a number of private lenders providing financing for residential rehab fix & flip deals throughout the United States, but all are private lending companies, not individual investors. Most of them will require borrowers to put some cash into the deal. For fix & flip deals, we have seen a number of lenders requiring 20% of the purchase price, and many will require just 10% of the purchase price. Once the purchase transaction is closed, some private/hard money lenders will provide 100% of the rehab / renovation / construction costs.

There are a few private lending companies on our platform that will consider financing 100% of the costs, but only for experienced property investors. Here are a few recommendations:

For new residential real estate investors who don’t have any experience, Do Hard Money could be a good option; they lend in 34 states. Many lenders we talk to suggest that new real estate investors find a partner for their first few deals. There are many REI (real estate investment) clubs throughout the country where real estate investors meet to network and learn. Many REI Clubs are listed on Meetup.com. The more established clubs use their own website instead of Meetup.com, so a Google search for “REI club” plus the city or state should get some results.

What’s the Difference Between a Private Lender and Hard Money Lender?

There are a number of opinions regarding the difference between a “private lender” and a “hard money lender”. In our opinion, they are the same – a non-institutional lender offering short-term mortgage loans to real estate investors. Our take on this comes from the perspective of being heavily integrated in the private lending industry. The majority of people who would disagree with our opinion are real estate investors (borrowers). This is what we hear from many real estate investors:

“A private lender is an individual investor who lends his/her own money and does not charge any points/origination fees. A hard money lender is a private lending company that charges points and may get their funds from investors.”

However, the lending companies which many real estate investors refer to as “hard money lenders” will commonly refer to themselves as a “private lender” or a “private money lender.”

Some private lending companies in our network do not like to be associated with the term “hard money” because they feel it has a bad connotation and makes them seem unprofessional or having extremely high pricing.

Private Lender Link does not list individual mortgage investors on our public directory. We only list private lending companies. Here are some of the benefits of doing business with a private lending company instead of an individual:

  • More Professional
  • More Reliable
  • Never runs out of money
  • Reputation
  • Legal Compliance
  • Easy to Find
  • Better Pricing

There are some benefits to borrowing from an individual investor:

  • May offer higher leverage
  • May consider a joint venture or equity position
  • Many don’t charge points (origination fees)

Private Lender Link does not list individual mortgage investors on our public directory. We only list private / hard money lending companies. It’s too difficult for us to vet individuals investors, and we can’t rely on them to deactivate their listing when they run out of funds to lend.