Are you looking to buy a home but have an unconventional financial portfolio? A private mortgage is a loan that is financed through non-traditional lenders such as banks and credit unions that may be a great alternative for you. They can be a great solution for individuals who are struggling to get a loan but do not qualify for traditional lenders. Private mortgages are provided by a combination of individuals (family members), syndicates (individual investors on a case-by-case basis), and mortgage investment corp (a group of investors who put their funds together to do multiple deals at once).
Private vs Traditional Loans
There are four main differences between private and traditional mortgages:
Amortization: The terms of a private mortgage usually range from one to three years, but some private lenders may offer long-term solutions up to 30-years.
Payments: With a traditional mortgage, payments go towards your principal and your interest. On the other hand, with a private loan, payments go towards only your interest, while your principle remains the same.
Fees: In addition to your monthly interest payments, you may need to pay your mortgage broker a commission.
Interest Rate: Private mortgage interest rates can range between 10-18%, which is significantly higher than traditional lenders. This is usually for individuals that are high-risk for lenders, and therefore, have to pay a premium to have access to the loans.
Benefits of a Private Mortgage
Easy to Qualify
Borrowers that are not able to secure a loan from a traditional lender such as a bank, can qualify for a private mortgage loan. Banks often require lots of documentation of the borrower’s finances and determine their eligibility on specific criteria, whereby if you do not meet them you are deemed “unreliable,” even if you are able to repay the loan. An example of this is individuals that are self-employed and cannot provide steady work history, or young adults who may not have good credit scores because they don’t have long credit histories.
How to Structure your Private Mortgage
First, any loan that you get should be well documented. Documentation protects you and the lender. The things that should be clearly stated are:
– Due date of payments (First of the month, quarterly).
– How and where payments will be made.
– Is there an option to prepay, or will they be penalized?
– Is the loan secured with/without collateral?
– What happens in the incidence of missed payments? (i.e. extra fees)
Evidently, a private mortgage is often a last resort solution for those who do not qualify for prime or bad credit lending. If you need the money quickly and are comfortable with interest-only payments, a private mortgage can be a great option.
If you or someone you know is in the market for a new home, contact Dhugga Mortgages. Whether you are looking for a private or traditional loan, we can help you navigate the process and ensure you are getting the best rates and terms.