Private Mortgage Lenders Explained
Private mortgage lenders are non-institutional or reserved lenders who give short-term loans to homeowners seeking to renovate their property.Well, the borrower is free to use the loan on other projects like buying a new property, investing in an opportunity and so on –no specific limits.
The reason people turn to private mortgage lenders is that their situation in terms of creditworthiness doesn’t meet the standards set by traditional lending institutions.
Talking of who benefits from private mortgages, the list is very long. It can include short-term investors who require money quickly; fix-and-flippers intending to buy, renovate and sell an estate within 1 year; buy and hold investors waiting to refinance an existing mortgage on a property; and long-term investors with a goal of seasoning the property.
Private Mortgage at a Personal Level: Application
When you have to deal with hard moneylenders who you typically don’t know, or don’t have a personal level relationship, the interest rate on the loan would be a bit higher.
You’ll also be required to provide a security, which can be a real estate orother properties you aredirectly attached to.After the loan is approved, borrowers can use the money to purchase a multifamily building, condo, a house or boost an existing property’s value through renovation.
Types of Private Mortgage Lenders in Detail
In the private mortgage industry, there are three degrees of lenders you will meet and all of them hinge on one thing: the level of relationship in the deal. Thisincludes people;
- In your primary circle – talking of family and close friends
- Those in your secondary circle – workmates, a personal acquaintance and professional you know
- Third-party circle –hard money lenders and accredited investors
Often times than not, people in your primary circle are the best to strike a private mortgage deal with, because it’s likely that they will charge the lowest interest(if at all any) on the money they lend you. However, this option risks the relationship because along the way the borrower might default or get into a more serious financial problem.
In the second circle,the mortgage terms might be lenient on the borrower as well, but this also put the lender at risk of losing. That’s why it’s often hard to find willing lenders in your primary and secondary circles.
That brings us to hard money lenders or accredited investors – or lenders in your third-party circle. With this type of private mortgage, the interest rates may vary between 7% -12%. Depending on the lender, you may also be required to pay an additional fee of 1.5% to 10% of the total loan given.
Most private mortgages come in to solve an extremely important need. However, an agreement officiated by a mortgage expert needs to be generated and undersigned by the involved parties to ensure trust and goodwill between the lender and the borrower.