Until recently, it was very uncommon to hear about obtaining a mortgage from any other lender other than the traditional leading banks. Methods of obtaining lending have changed though, and now private lenders are becoming much more conceptually popular in the area of mortgage lenders. Before signing the paperwork for your mortgage from a private lender, though, there are a few things you must keep in mind.
What is a private lender?
Private lenders are individuals, or a group of individuals, who lend out their own money to help people purchase their homes. They are typically used when the people looking to buy a home are in a less than ideal situation and would typically be a higher risk to lend money to. Private lenders are more willing to lend money to individuals in these situations that the banks may have refused.
Is there a limit to private mortgages?
Traditional lenders typically have strict guidelines as to how much they can lend out, and those guidelines are imposed based on income levels and debt servicing ratios. When it comes to private mortgage lenders, they have more room to determine who they want to give a mortgage to – even if that person has more debt than a traditional lender would allow.
What are the benefits?
Private mortgages typically have a shorter term in comparison to traditional mortgages – ranging from 6 months to 3 years – and they can be used as a platform to get the homebuyer into a more traditional mortgage if they have bad credit or just did not qualify for that mortgage before. A private mortgage can help you build up your credit score if you need to, as well.
Who can benefit from a private mortgage?
Private mortgages can really be for anyone, really, but typically they are for the following situations.
- Those with a low credit score
- Those looking for a short-term loan.
- Those who have a non-traditional source of income (E.G self-employed)
- Those looking for another lender other than the traditional banks.
- Those who are buying a non-traditional property type.
- If you need quick approval financing and cannot go the traditional route
How are the payments made?
Unlike a traditional mortgage, with most of the private lenders, you are only required to pay the interest amount every month and you repay the full principal amount at the end of the full term this can greatly reduce the strain on your monthly finances if you need it.
You can either choose to make a monthly payment or make a larger up-front payment that will cover all the fees and interest for the whole term with the consent of the private lender. The payment options with a private mortgage are very flexible – which makes it a great option for structuring it in a way that works for you. Working with a private lender may seem conceptually different, at first, but it is a great option for those who have not been able to qualify for a traditional mortgage and need a different option. As discussed, there are many situations where private lending is ideal and would be the most convenient option.
Do not hesitate to call Triple M Mortgages today!