Buying a house with a private mortgage: Uncover your options
Buying a house can be a very exciting process. But it can also be a hard goal to reach when you’ve had financial issues and banks have turned you away because of debt.
Fortunately, private lenders offer an alternative source of financing that can be very useful for home buyers.
How do private lenders work?
They’re businesses or individuals that have significant funds available and extensive experience in creating quick, simple and flexible financing solutions.
When , turning to a private lender is a completely viable way of funding projects like buying a house. For their protection, these lenders usually offer first mortgage or second mortgage loans on your existing property.
Banks vs. private lenders
A private mortgage is different from a bank mortgage.
Before lending you money, banks will look at what down payment you can make and examine your debt ratio, assets and liabilities, annual income and credit history.
These requirements often discriminate against people with a less-than-spotless financial record.
Private lenders on the other hand may not even look at these things and will show much more flexibility. For instance, they may calculate the amount of your loan based solely on the purchase price, and they can offer you terms that banks won’t.
How private lenders can help you buy a house
Private lenders start by reviewing your plan. They will invest their money in exchange for interest on the loan, ranging between 12% and 15%, depending on the situation. This interest rate may seem high compared to what banks offer, but private lenders are considered a temporary and transitional option. And the cost is definitely worth it in most cases.
Once you get the go-ahead for your purchasing plan, a notarized contract between you and your private lender will be drawn up. Under normal circumstances, private lenders offer loans for up to 75% of the home or building’s market value, with terms of 3 to 36 months.
As with any loan, it’s critical that you discuss the conditions from the very start: how the interest will be paid back, what the terms are in the event a payment is missed, whether you can repay early, etc.
When to consider private lenders for a home purchase
Private lenders are useful in specific situations like the following:
Your credit rating is bad
Before banks decide whether to lend you money to buy a house, they will analyze your . Private lenders won’t. Instead, they’ll look at the market value of the property you’re mortgaging.
You are considered too high-risk
Banks can refuse to finance the purchase of a home if they feel you pose a high level of risk, if your borrowing capacity is too low or if you don’t have enough cash.
Private lenders can let you move forward with your plan to buy a house even when these aspects of your financial situation are not favourable, because they base their decision in part on the mortgaged property’s market value.
You want to flip a property
Real estate flips are increasingly popular with investors. But banks don’t like them, especially when the person asking for the loan is doing their first flip.
For real estate investors wanting to flip a property, the problem isn’t always their credit history but their maximum borrowing capacity. However, private lenders are open to financing projects that have been refused by banks.
Another thing to consider is that a bank mortgage entails a long, formal process. But getting money from a private lender to buy a property for flipping is quick. That makes it easier for you to jump on an opportunity before it disappears from the market.
Other situations when private lenders offer an advantage
Here are other situations where private lenders may be beneficial in financing the purchase of a house:
- You’ve had a bankruptcy
- You don’t have enough income but do have a down payment
- You are
- You want to buy a nonconventional property that banks refused to finance
In all cases, the minimum down payment is 25% of the purchase price.
Private lenders help make house purchases a reality
Private lenders offer flexible loan conditions and rapid financing. If the banks have refused to approve your loan request to buy a house, you may want to consider private lenders—a completely valid alternative solution.
Your private lender will do everything in their power to help you buy your house. Why not contact a private lender now to talk about your plans and get answers to your questions?
You can also fill out our Online Financing Application Form. We’ll let you know within 24 hours whether you meet the conditions to get a mortgage from us.
