Many potential homeowners with bad credit or who are self employed may find it difficult obtaining approval for a mortgage or refinancing loans from financial lending institutions. These people have another option if they’ve been turned down as they could apply to a trust company or for a private loan even though the interest rates will be somewhat higher. Private mortgage loans are typically offered by investors who pool their money and provide them to borrowers who haven’t had any luck elsewhere.
What is a Private Mortgage?
A private mortgage is basically a loan issued by a private lender that is secured by the property in question, which makes the personal credit of the borrower less of a determining factor in the loan approval process. Most private lenders look at the overall value of a property and its marketability when lending money instead of just the homeowner’s credit history. It’s often seen as a good option for those who can’t get financing anywhere else, those who want a short-term loan, and those who prefer not to wait for a long mortgage approval process. It’s also an option for newcomers to the country who can afford the payments, but don’t have a sufficient credit history.
Depending on the property, source of funding, and the current state of the economy, the mortgage interest rates from a private lender may range from 10 to 18 per cent. Most private lenders will approve or turn down a loan within about a week after receiving the application. However, in some cases it may be quicker or longer. In general, you’ll usually receive the funds two to three weeks after applying for the mortgage loan.
The Value of the Property
The value of the property will be taken into consideration since it needs to be in good condition and will undergo strict appraisal. This enables lenders to secure their investment in case the borrower defaults on the mortgage. When buying a new home a private lender will typically insist you have a down payment of at least 15 per cent. If the loan is for refinancing purposes private lenders will generally lend you up to 85 per cent of the value of the property’s value.
The main difference between a lending institution and a private mortgage lender is the private lender will make their decision on your ability to pay off the loan rather than just looking at your credit score and history. Each borrower is evaluated individually since all applications are treated as being unique. However, it’s important to find out all of the details and read the fine print when looking into a private mortgage loan.
Since the interest rates may be significantly higher you need to make sure the payments are affordable. You also need to enquire about any fees and late payment charges etc. These private lenders may be willing to offer deals which banks and traditional mortgage lenders won’t, though interest rates and up front costs may be higher.
It’s a good idea to deal with a trusted mortgage broker when you’re looking for financing as they may be able to connect you with a private lender if you’ve been turned down by an institution. Qualifying for a private loan is quite a bit easier than qualifying for a mortgage at a traditional lending institution since the interest rates are higher and the lenders generally view the benefits as outweighing the risks.
Have a question about obtaining a private mortgage? Mortgage Meister specializes in both institutional and private lending options and can help you get approved for a loan in just a few days. Contact us here to learn more.