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Private Mortgage

A private mortgage is a loan that, unlike traditional mortgages, is provided by a private lender such as an individual, a group of investors, or a corporation. Private mortgages can be a great option for those who are self-employed or have an irregular income, have a bad credit history or poor credit score, or have a property that a bank or traditional lender may not be willing to finance.

Applying for a private mortgage can mean an easier and faster approval process. When considering going with a private lender it is important to have experienced and trusted advice, let Mortgage Squad Agents find a solution that is right for you.

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    What is a Private Mortgage?

    A private mortgage is a type of mortgage loan that is provided by an individual, group of investors, or corporation instead of traditional lenders like banks and credit unions. Private lenders can be an option if you are unable to qualify for a mortgage through more conventional lenders. Private mortgages have a different set of criteria and rules from the types of mortgages that you would get from a bank and can be a great option for those who are self-employed or have an irregular income, a bad credit score, or have a non-traditional property. They generally have faster and easier approval and have greater flexibility with terms. Downsides of going with a private mortgage are the higher interest rates, often in the 8-20% range, and the complexity that can arise due to the broader range of possible terms.

    Why Should You Apply for a Private Mortgage?

    There are many reasons why people go for a private mortgage and can include having bad credit, a variable or unstable income, a non-traditional property, or if you’re planning on reselling the property in the near future:


    • Bad Credit: Applicants like young people and newcomers may have a bad credit score or a lack of a credit history. These factors can negatively impact your ability to get regular loans which makes a private mortgage an attractive option.
    • Variable Income: Being self-employed or having an unstable income makes banks reluctant to provide loans. A private lender is more flexible and can help you get the mortgage you need.
    • Non-Traditional property: Having a non-traditional property that a bank may not be willing to finance makes it difficult to obtain a mortgage. In these situations a private mortgage lender may be more open to financing your loan.
    • Reselling the property: The relatively quick and easy process of a private mortgage makes them great tools for people interested in repairing and then reselling homes, what is commonly known as “flipping”. The flexibility of private lenders can make these short term arrangements beneficial.

    Going with a private lender can mean having an easier and faster approval process. When considering a private mortgage it is important to have expert advice.

    How does a Private Mortgage work?

    A private mortgage is a deal where you obtain a loan for a property from a private lender. Instead of a bank or a credit union you apply for a mortgage loan from a private individual, a group of investors, or a corporation. When you apply with a private lender there will be criteria that your application will be judged on, similar to what banks would look at, and if you qualify you will be offered terms for a private mortgage loan.

    What Are Private Lenders?

    There are three different types of private lenders that you can obtain a private mortgage from: an individual private lender, a syndicate or group of lenders, or a private mortgage lending corporation. Individual: A private individual who you make a deal with. Syndicate: A small group of investors who work together to finance deals. Corporation: A company funded by investors who can finance multiple projects.

    How do You Qualify for a Private Mortgage?

    When evaluating your application for a private mortgage the lender will look to assess the value and condition of the property, your income, the down payment involved, and in the event of refinancing they will also look at the equity in your property:

    The Property

    Since private lenders are taking on a risk, they will look to appraise the property and secure their investment. The value and condition of the property are all factored into the decision-making process. A property that will resell easily will have a greater probability of being approved for a private mortgage.

    Your Income

    When taking out a private mortgage the lender will need to make sure that you can make payments so you will need to demonstrate your ability to keep up with payments via your income.

    Down Payment

    The larger the down payment the lower the risk for the private lender and the better your mortgage terms will be.

    Equity

    If you are refinancing your property through a private mortgage the lender will need to assess how much equity you have built up. The greater the equity the better your terms will be.

    Once the evaluation is complete and you meet the requirements for approval the private mortgage lender will contact you with mortgage terms.

    What are the Advantages of a Private Mortgage?

    There are some distinct advantages when it comes to getting a private mortgage. The application process can be quicker and easier than with a traditional lender, and private lenders have greater flexibility with the terms they can provide:

    Easier approval: A private mortgage can be much easier to get approval when compared to a traditional mortgage. Lenders like banks and credit unions have stricter requirements than private lenders. Young adults, newcomers, and first time home buyers without a long credit history and those with an unstable income will be negatively evaluated when applying for a traditional mortgage which makes a private mortgage an attractive option.

    Faster approval: Banks and credit unions have regulations regarding documentation and may require verification of your income and a property assessment. As such, getting a mortgage loan from a bank can be a lengthy and time consuming process that may take several weeks. The approval time of a private mortgage is usually much shorter, with some private lenders able to approve within two weeks.

    More flexibility: With a private mortgage the lender is more flexible and can provide a loan to those that may not meet the requirements of a traditional lender. Similarly, the terms of a mortgage loan from a private lender have greater room for negotiation and you may be able to receive mortgage terms ranging from 1 year to over 30 years depending on how the private mortgage is structured.

    What Risks should I be aware of with a Private Mortgage?

    Private mortgages come with their own set of risks to consider including relatively high mortgage rates, the structure of the loan, and the associated and closing costs:

    Higher Mortgage Rate: Private lenders usually provide services for borrowers with a higher risk profile due to income, credit rating, and other factors. As such, a private mortgage will usually have a higher rate than a traditional mortgage, typically in the range of 8-20%. The higher rate means that you should apply for a private mortgage if you have already been turned down by a bank.

    Greater variation: Since there is greater flexibility with a private mortgage there is a greater variation of factors to consider. This requires a careful understanding of the terms and conditions of your mortgage, including the length of the payback period and the mortgage rate. The mortgage terms can range from 1 year to over 30 years depending on how the loan is structured.

    Associated Fees and Costs: A loan application like a private mortgage will have associated fees and costs related to assessing and providing the mortgage. Set-up costs, private lender fees, and brokerage fees typically range from 1-3% of the mortgage amount.

    Commonly Asked Questions

    A private mortgage is a type of loan that is provided by private lenders instead of traditional lenders. They can be a great option for those who are self-employed or have an irregular income, a bad credit score, or have a non-traditional property.
    When you apply for a private mortgage with a private lender you are evaluated based on your property, your income, and any down payment or equity that may be involved in the deal. If you qualify for approval you proceed to negotiating mortgage terms with the lender.
    Private lenders typically charge a 8-20% interest rate. By providing a private mortgage for those with poor credit, unstable income, or without a long credit history, the lender is taking on a greater risk so the interest rates are accordingly higher than a traditional mortgage.
    Private mortgage lenders will secure their loan through your property so while they are considered higher risk than a traditional mortgage they will be less risky than an unsecured loan. It is important to understand the structure, terms, and conditions of your private mortgage when you sign on.

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