At its December 2024 Fed meeting, the Federal Open Market Committee (FOMC) again cut its target interest rate by 0.25%, between 4.50 and 4.25%. These projections are a positive sign for Americans and the Fed, which is working to return inflation to its 2% objective and combat soaring home costs. However, even with a current federal fund rate of 4.33%, the immediate impact on personal loans may be minimal.
What do recent Fed decisions mean and how do they impact private lenders and their real estate investors? Let’s discuss:
What do recent Fed decisions mean and how do they impact private lenders and their real estate investors? Let’s discuss:
How Does the Fed Fund Rate Affect Mortgage Loans?
The Fed Fund Rate influences private lenders’ interest rates for new borrowers because it impacts lenders’ costs. When the fund rate is high, lending is more expensive. As we saw in 2022 and 2023, the Fed’s decision to hike rates subsequently increased the average personal loan rate.
In theory, lowering the Federal fund rate would create more favorable interest rates for lenders and investors. However, the Fed fund rate’s relationship to loan rates isn’t direct. Although the two are often moving in the same direction, in reality, several economic factors impact mortgage rates along with Fed policy changes, including:
In theory, lowering the Federal fund rate would create more favorable interest rates for lenders and investors. However, the Fed fund rate’s relationship to loan rates isn’t direct. Although the two are often moving in the same direction, in reality, several economic factors impact mortgage rates along with Fed policy changes, including:
- The mortgage market’s supply and demand
- Employment patterns
- The bond market
- Inflation
Since the Fed fund rate reductions, long-term mortgage rates have either gone up or remained inert. Why exactly? Traditional lenders, like banks and credit unions, have ordered to “price in” expectations for higher inflation and fewer Fed cuts in 2025. President Trump’s tariffs, tax cuts, and mass deportation proposals are widely considered inflationary–which leaves lenders hesitant to drop rates and less likely to approve mortgage loans for non-owner borrowers within the real estate market.
Recent Fed Decisions: The Bottom Line for Private Lenders
While the recent Fed decision to cut rates should eventually lower rates, the standstill creates unique and profitable opportunities for private lenders and their real estate investors.
Unlike traditional lenders and mortgage loans, private brokers operate outside of governmental and institutional guardrails, and are able to provide investors with business purpose loans. These loans, which are specifically designed to fund the purchase and rehabilitation of investment properties, have different influencing factors, including money supply, leverage, and underwriting criteria.
Money Supply
In the private lending sector, money supplies play a huge role in interest rates. In general, the more money available to lend, the lower the interest rates a lender can offer to borrowers. That is why savvy private brokerage firms turn to capital providers offering table funding programs to expand their cash flow and overall offering to clients.
Leverage
Rather than harping on credit scores and down payments like traditional banks, private lenders take Loan-to-Value (LTV), Loan-to-Cost (LTC), and After-Repair-Value (ARV) into consideration when determining business loan eligibility.
Not only does this make it easier for lenders to say “yes” to borrowers, but it can give borrowers more leverage during interest rate negotiations. The lower the LTV–the amount borrowed compared to the property’s current or prospective value–the lower the interest rates investors are eligible to receive.
Not only does this make it easier for lenders to say “yes” to borrowers, but it can give borrowers more leverage during interest rate negotiations. The lower the LTV–the amount borrowed compared to the property’s current or prospective value–the lower the interest rates investors are eligible to receive.
Underwriting Criteria
While private lenders make getting approved easier, taking an asset-focused (rather than borrower) approach to loan creation, borrowers’ histories can help them access better interest rates. Without governmental and institutional oversight, private brokers maintain complete control over their underwriting criteria and interest rates. They can also take things like investment experience, credit history, and downpayments into account when determining interest rates.
Additionally, short-term bridge loans for fix and flip or new build projects through private lenders are less about the interest rate and more about the loan structure. Private lenders design short-term business loan options to ensure flexibility, creating the best exit strategy for investors. That is why many of the top private lenders waive prepayment penalties and are happy to work with borrowers with lower credit scores or little to no money down.
Additionally, short-term bridge loans for fix and flip or new build projects through private lenders are less about the interest rate and more about the loan structure. Private lenders design short-term business loan options to ensure flexibility, creating the best exit strategy for investors. That is why many of the top private lenders waive prepayment penalties and are happy to work with borrowers with lower credit scores or little to no money down.
Conclusion
So, while traditional lenders are pumping the brakes on lowering interest rates and approving investor loans following recent Fed decisions, private lenders have the freedom and flexibility to provide investors with the best financing options on the market.
Business purpose loans through private lenders provide investor clients:
Business purpose loans through private lenders provide investor clients:
- Flexible Terms: Unlike stringent bank loans, private lenders have the flexibility and freedom to tailor loans to meet a project’s unique needs or work with bad credit or a lack of liquidity.
- Fast Approval Times: Quick loan approval processes allow investors to outpace the competition and capitalize on properties quickly.
- Eligibility for Non-Owner Occupied Properties: Several types of non-owner occupied properties qualify for business purpose loans, including:
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- Attached or detached Short Family Rentals (SFR)
- 2 – 4 unit properties
- Townhomes
- Warrantable condos
- PUD
- No Prepayment Penalties: To make loans more accessible and easy to exit, private lenders often waive prepayment penalties on business purpose bridge loans.
- Eligibility for Low Credit Borrowers: Private lenders take Loan-to-Value (LTV), Loan-to-Cost (LTC), and After-Repair-Value (ARV) into consideration when determining business loan eligibility and interest rates.
Even with inflationary uncertainties and recent Fed decisions, the market for private lenders and their real estate investment clients remains bullish. For private lenders, the pause by traditional lenders to lower rates creates a unique opportunity for growth and expansion. Lenders with an adequate and reliable money supply offering business purpose loans have the capital and tools to expand their business and bottom line.
Roc Capital: Your Capital & Business Purpose Loan Partner
Roc Capital provides private lenders with the freedom, flexibility, and financing to perform in today’s markets. We help lenders tailor funding options that attract valuable investment opportunities and cultivate successful business partnerships through reliable and superior capital backing.
We provide:
We provide:
Our White Label Table Funding program is the golden egg for private lenders, providing the financial backing and loan expertise needed to outpace the competition, win clients, and operate successfully regardless of the economic landscape or Fed decisions.
Ready to elevate your mortgage business with Roc Capital? CLICK HERE to learn more about our White Label Table Funding program and get started today.
Ready to elevate your mortgage business with Roc Capital? CLICK HERE to learn more about our White Label Table Funding program and get started today.
