Relying on Private Mortgage Lenders

Obtaining a private mortgage loan involves a private lender providing an investor with the money necessary to either perform repairs on a property or purchase it. The loan is secured by the property itself. That essentially means that the property serves as collateral until the loan is paid off entirely. Therefore, the decision to lend money is not based on the borrower’s credit; Rather, it is based on the value and equity of the property. In fact, it is possible to acquire a loan that is worth approximately 60 to 70 percent of the fair market value of the property, assuming that it is producing income. On pieces of property that do not produce income, such as raw land, the maximum loan amount you can obtain is around 50 to 60 percent of the value. Furthermore, interest rates are usually anywhere from 12 to 18 percent.

Considering that financial institutions will offer the same mortgage at much lower interest rates, why then are investors so keen on obtaining financing through private lenders? One major reason is because oftentimes, either the investor or his/her property do not pass the requirements necessary for attaining a certified institutional mortgage loan. This can be due to the investor having way too low credit scores or an abundance of debt. In addition, a multitude of banks and financial institutions will not consider offering a loan for property that is not worth at least $500,000. Due to these situations, it becomes necessary to seek out the help of a private lender.

Another reason people choose private lenders is because acquiring cash from financial institutions takes time. It can take anywhere from two to three months to obtain the required funds. During that time, the institution will engage in a detailed examination of your credit, as well as your financial history. A few minor blurs can easily make the difference between obtaining the money and not receiving it. On the other hand, a private lender can process your application and put money in your pockets within as little as a week to two weeks. Actually, private lenders also typically offer more money than institutional lenders. This means that you need not invest as much of your own money into the property.

So more than likely, you are going to need to rely on a private lender. Unless you happen to have an extremely desirable credit rating and you are wanting to invest in property that is worth a whole heap of money, you are asking for a lot of hassle and trouble applying with a financial institution. They will look into every aspect of your financial history, even dating back to your college loan days! So keep that in mind before you turn in your application!