When your bank has rejected your loan application and it seems there is no way of getting the funding you need, a private mortgage lender can help.
Most people have never heard of this type of lender and never consider them for a loan. A private mortgage lender funds their loans through individual investors.
They use their own money as an investment in your property. Interest rates are higher when using private mortgage lenders but the ease of approval can sometimes be well worth the additional cost. Banks have several financial and property criteria that must be met.
Private mortgage lenders are not concerned with your credit history or the property condition. Instead they look at the actual value of the property being funded. A private mortgage lender is more likely to approve a loan than any other type of lender.
The main drawbacks of using private mortgage lenders are higher interest rates, shorter loan terms, and higher overall fees. Interest rates used by private mortgage lenders are can be as high as fifteen percent. They are figured based on borrowing strength, property condition, the borrower’s contributory equity, and the loan-to-value ratio.
Private mortgage lenders have higher fees than conventional lenders and the loan term is normally no longer than six years. For most private mortgage lenders, a loan can be as short as six months or an average of two years in length. This information needs to be kept in mind when making the decision to work with a private mortgage lender.
Private mortgage lenders are chosen as an alternative when a conventional lender has been denied or someone doesn’t want to be tied to the normal stipulations that come along with one. Real estate investors often use private mortgage lenders when a bank refuses to lend on a specific property. By using a private mortgage lender, real estate investors are able to make a profit whereas they most likely would have been able to.
Conventional lenders can reject financing a property for many reasons. Common reasons include the property being in bad condition, a non-standard type of property, not enough cash leverage, and a low credit score. Private mortgage lenders do not reject a loan for these reasons. The only thing a private mortgage lender cares about is what the value of the property is and that it is enough to finance the property.
The higher fees charged by a private mortgage lender are due to the higher risk associated with the loan. Banks will not approve risky loans because they rely on timely payments and full payment of the loan. Up front fees for private mortgage lenders are higher to cover the additional risk.
Private mortgage lenders also limit the loan-to-value ratio to allow for recovery of income in the event of foreclosure on the property. Higher interest rates also increase profitability of private mortgage lenders which makes the risk more feasible. You might be in a situation where all other options have become a dead end. A private mortgage lender can provide the funds you need even when the loan is high risk.
A private mortgage lender can help you when banks refuse to take the risk. Private mortgage lenders use private money to finance loans and are more willing to take on high risk loans. They charge higher fees and interest rates to ensure they do not take a loss on the loan if it should go into default.
Instead of relying on credit scores as other lenders do, private mortgage lenders determine loan approval by looking at the property worth and cash the borrower has available. This makes the entire process much simpler and requires less paperwork and processing time. Even when your credit is bad and no one else wants to work with you, private mortgage lenders will consider financing.
A private mortgage lender can be very helpful when financing is needed quickly and in the not so optimum conditions.