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Published On: Wed, Aug 14th, 2019

Useful Advice for Starting a Mortgage Lending Business

Private mortgage lending continues to grow in popularity as investors search for yield. While some opt for syndicates and peer-to-peer websites, investors can cut out the middle-man and lend directly. Here are five tips to get your private lending business up and running.

Know the Law First

Money lending is typically governed by a combination of state and federal laws. In many places, lenders must complete basic licensing requirements. Failure to do so can result in penalties. If you are going to invest the time, energy and capital into operating a mortgage lending company, then it will be worthwhile to consult an experienced attorney first. This can not only prevent fines, but you will rest well knowing that there is no gray area in your business.

Connect with Brokers Who Specialize in Private Mortgages

According to Alexis Assadi, a private lender in Canada, Mortgage brokers will often dedicate some portion of their practice to catering to private mortgages. That means they need to know as many reliable private lenders as possible. “Search online and ask for referrals,” suggests Assadi. “Reach out to brokers – even by a simple email – and let them know who you are and what types of deals you’d like to fund. There is a good chance that the deal flow will start almost immediately.”

photo/ mohamed Hassan

Decide On the Basics of Your Business

Figure out the following before you make your first loan. Generally:

  • How often do you want borrowers to make interest payments. Monthly? Quarterly?
  • How do you want borrowers to pay you? By check? Wire transfer? Direct deposit? Internet money transfer?
  • Will you charge late fees? If so, how much?
  • If there is a dispute, where would you want legal action to take place?
  • What kind of contact information do you want for each borrower? Will you provide monthly account statements? Are you required to by law?
  • How will you keep track of your borrowers’ contact information? Do you have a software, database or a spreadsheet that you could use?
  • What is the minimum rate of return that you require?
  • Who will pay for your legal fees? If it’s the borrower, will you require cash up-front or deduct the amount from funds advanced? How much will those fees be?

Know Your Options in the Worst Case Scenario

Most lenders will experience a degree of loan defaults. They are typically accounted for in the business model. For example, they may assume that 5% of their portfolio will collapse and will be prepared to write it off.

Retail mortgage lenders usually cannot afford to have a single loan default. Therefore, you should know what your options are if the worst-case scenario does happen. Is legal action realistic given the costs? How much equity does a property have in it? Would you rather work with the borrower or commence foreclosure immediately?

Private lending can be a good business that is relatively simple to manage. But you should tread cautiously and consult with professionals before starting one. That way, you’ll have the best shot of earning a great return while keeping your risks as low as possible.

Author: Chris Hayne

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    […] Useful Advice for Starting a Mortgage Lending Business – Private mortgage lending. Here are five tips to get your private lending business up and running. Know the Law First Money. […]

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    […] Useful Advice for Starting a Mortgage Lending Business – Most lenders will experience a degree of loan defaults. They are typically accounted for in the business model. For example, […]

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    […] Useful Advice for Starting a Mortgage Lending Business – Retail mortgage lenders usually cannot afford to have a single loan default. That way, you’ll have the best shot of. […]

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