Who Lends Private Mortgages?
A private mortgage loan operates differently than a loan from a conventional lender, such as a bank or credit union. With this option, financing is provided through private lenders or pooled mortgage funds. Investors choose to invest their money in these kinds of loans because they are able to generate a satisfactory return on their investment while being secured against real estate.
When approving a mortgage, private lenders give greater consideration to the property, its marketability and the equity in the property rather than the credit score or income of the borrower. In recent years, private funds have gained traction as a financing option due to rules set by the federal government and the strict underwriting criteria currently in place at conventional lenders. Private Lenders of all kinds have come into the market to provide alternative real estate financing to borrowers who are not able to be qualified by a conventional lender.
The application process with a private lender is different from a conventional lender. The underwriting process is typically less stringent with a private lender; however, the borrower pays for this greater convenience with higher rates and fees. This aspect is extremely beneficial for borrowers who may have challenged credit. In conventional lending a borrower without a good credit history, will have a difficult time getting a loan from a bank. For this reason, many decide private mortgages is a better option while they improve their credit rating.
Most borrowers would rather borrower from a conventional lender before using a private lender as the costs are lower. Some borrowers choose to work with private lenders because of privacy concerns and the speed at which a private lender can provide financing. Private mortgages continue to grow as a viable alternative for more borrowers.