The home surge
Private Mortgage Lenders
Get the information you need to succeed. Experienced and trusted industry experts to bring smart, informed, and simplified advice to the forefront.
The ability of the borrower to get a mortgage directly from the bank or similar financial institution is often limited by the strict and conservative guidelines used when issuing these kinds of loans. Banks typically require tons of documentation, perfect credit score, medium to high average income, and clear debt situation. So’ it’s understandable that the borrower’s finances are often not credible enough for such an institution to approve a mortgage. Unfortunately, this means that even if you are absolutely capable of returning the loan, you can get turned away by traditional lenders. An alternative route you may take in this case is resorting to private mortgaging.
WHAT IS A PRIVATE MORTGAGE?
A private mortgage implies a loan achieved through a private source of funding, usually a business in the private sector, such as trust companies or credit unions whose services are secured through a professional mortgage broker. The repayment period on these loans is usually shorter and ranges from 1 to 36 months. Private lenders are more interested in the value of the mortgaged property itself, rather than the credit score or overall finances of the borrower. When assessing the property, they take into account the condition the property is in, any remaining equity, and the asset’s location. It’s important to note that the private, or so-called B lender usually charges higher interest rates than a bank, but more often than not they are fixed for the whole time of repayment. Private mortgages are often the only way for a borrower to get some financing and are a perfectly viable solution, but still require careful consideration of numerous factors involved.
PRIVATE MORTGAGE PAYMENT OPTIONS
Private lenders generally offer several different payment options when it comes to returning a loan. this includes paying only the monthly interest payments or choosing to pre-pay interest from the original funding and have your overall debt decreased for that amount. Another option is accrued interest mortgage meaning that you can delay your interest payments until the very end of the payment period. These are all options not commonly available with traditional lenders who prefer blended monthly payments including both interest and principal.
HOW LONG IS THE REPAYMENT PERIOD FOR PRIVATE MORTGAGES?
As we already mentioned, private mortgages are usually short-term loans, and you can get one for a period as short as 1 month. Upon the expiry of the agreed repayment period, if you have settled your debt on time, you have the option of renewing the mortgage. Also, you always have the option of repaying your mortgage before the set period by refinancing with another lender.
INTEREST RATES FOR PRIVATE MORTGAGES
Depending on the value of your property you can agree on a range of interest rates with your private lender. They usually go from 4% to 12% for first mortgages and from 5.5% to 14% for second mortgages. as you can see, these rates are typically higher than the ones you would get with traditional lenders.
WHAT TYPES OF MORTGAGES CAN PRIVATE MORTGAGE LENDERS DO
Not all private lenders deal in all of the types of loans. Usually, they are specialized, mostly depending on a type of property, loan, or the amount blended. The most common specialties of private lenders are:
· commercial mortgages – lending based on commercial properties is usually more complex and often requires a lender whose whole focus is on this type of loans
· residential mortgages – similar to commercial mortgages, these kinds of loans are best done with a specialized private lender
· refinancing for debt consolidation – granting equity and mortgage refinancing for the purposes of debt consolidation
· refinancing for renovations – loans intended for home or commercial property renovation
· refinancing for purchasing additional properties – private loans as a means of funding the purchase of another property
· construction financing – loans for private or commercial construction purposes
· urban areas vs non-urban markets – a lot of private lenders base their business and find their leverage and value depending on the location of the property
HOW FAST CAN YOU HAVE YOUR PRIVATE MORTGAGE LOAN APPROVED
The process of applying for and approving private mortgage is much faster than it’s a case with traditional lenders. Depending on the amount and complexity of the deal, you can have you and approved as quickly as 2 days. On average, this period is usually from a couple of days to three weeks which is still very swift knowing that it sometimes takes months with traditional lenders. The private lenders make use of the lack of the less strict regulations in their field to be able to approve loans in such a short time. In turn, this enables them to see a return on their investment much sooner.
QUALIFYING FOR A PRIVATE MORTGAGE
When approving a private mortgage loan, private mortgage lenders take the following factors into account:
· value and the type of property up for the mortgage
· the available equity for second or third mortgages, or refinancing
· borrower’s average monthly income (ability to make payments on time)
· Private lenders usually don’t perform thorough credit history checks, allowing you a chance to get a private mortgage even with bad credit history.
BENEFITS AND DOWNSIDES OF PRIVATE MORTGAGE LOANS
Private mortgages, as we mentioned, provide numerous advantages compared to ones taken up with traditional lenders, but there are some factors that you should be wary of. Below, we have provided a list of major pros and cons of private mortgages:
PROS OF PRIVATE MORTGAGE LENDERS:
· debt consolidation
· simpler process and faster approval compared to banks
· ability to get the loan even with the bad credit score
· no requirements regarding minimum monthly income
· a useful tool for rebuilding and repairing credit
· chance to get the financing form the vendor selling you their property
POTENTIAL DRAWBACKS OF PRIVATE MORTGAGE LENDERS:
· usually lower terms like 1 or 2 years
· possibility of higher interest rates depending on property condition
PRIVATE MORTGAGE FREQUENTLY ASKED QUESTIONS
What is the amount of money I can borrow through a private mortgage?
Depending on the value of your property you can borrow anywhere from about $20,000 to even $100 million, it all depends on the fair market value of your home and how much equity you have saved in your home over time.
Am I eligible for a private mortgage if I’m self-employed?
You can, due to the mush simpler verification procedure. in fact, many private lenders specialize in loans for self-employed borrowers. this is often the best financing option for people in that situation
How soon can I receive funds once my application is approved?
If everything is in order with your application, you can get your funds as soon as within a week.