Private mortgages are loans taken out with individuals or institutions that can help you finance your home when you cannot meet the rigid rules of a regular mortgage. It’s a great alternative to loans from financial institutions for those who can’t secure a loan due to bad credit history or other reasons.
Who are private mortgage lenders and how do they work?
Private mortgage lenders are usually ‘angel investors’. Angel investors can be wealthy individuals who invest in providing capital for small business startups or private mortgages. For an angel investor a loan is like an investment because they are receiving interest and, in terms of business startups, sometimes equity in the company. For private mortgage lenders, investing cash that would otherwise not be earning anything, results in profits. Private mortgage lenders invest in residential mortgages and commercial mortgages but some have preferences in which they would prefer to invest in. These lenders tend to assess the mortgage as an investment and so credit histories and financial background is not as important as it is for financial institutions. They are likely to evaluate investment opportunity on a case by case basis, sometimes even meeting borrowers in person. The whole process is faster and easier than a conventional mortgage loan but can tend to be riskier with the possibility of higher interest rates and fees.
Why go for a private mortgage?
- Look into a private mortgage if financial and lending institutions are not granting you the mortgage you need to finance your home.
- Private mortgages are great if you need a short term loan that doesn’t put you in debt for decades. You can get mortgage loans that last you only a few years.
- If you have an undesirable credit history and have been repeatedly rejected by traditional lenders the possibility of a private mortgage is a great advantage.
- You need a quick influx of cash or your dream home will slip through your fingers. Private mortgage loans have shorter processing times and thus can secure you funds faster than conventional mortgages. Usually you can get financed in just days!
How are private mortgages different?
- Private lenders tend to give out mortgages in shorter terms. That is to say, if you take out a private mortgage loan you may not be in debt for decades as compared to loans with conventional lenders.
- You may incur very large fees with a private loan. Sometimes above the amount that you are paying in interest.
- The whole process can happen very quickly because many private lenders don’t have to go through the same bureaucracy as financial institutions. Access to the funds could take as little as 2 weeks and approvals in as little as 2 days.
- Interest rates are generally higher than traditional mortgage loans. This is to be expected as the lender is risking their money on borrowers who may not have the best financial background.
Note: A good way to secure a good private mortgage is to go through an experienced mortgage broker who can find you the best deal with dependable private mortgage investors.