Private Mortgages

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Private Mortgages

We Can Help You Get Approved For A Mortgage Even When Your Bank Won’t!

What Is A Private Mortgage Loan?

A private mortgage is an alternative source of financing given to a borrower by a private lender, and is usually sought after when a traditional bank or lending institution will not approve a borrower for a mortgage or a home refinance loan. They are usually short-term interest-only loans ranging from 6 months to 3 years. At Fanson, our experienced mortgage agents specialize in finding the best private lender who will offer you the right option for your needs and specific financial situation.

Private lenders understand that the guidelines used by the banks and other traditional lending institutions are too stringent, and that in many cases banks turn away borrowers who are perfectly capable of paying back their mortgages. Unlike banks, private lenders place a larger focus on the value and over condition of the property, instead of simply looking at the borrower’s credit and income.

A borrower will often try getting a mortgage or refinance their property by making contact with their bank first. These days this is a hard feat to accomplish. If their banks turn them away due to bad credit, high debt that may be in arrears, low income, or other issues, then they would contact a mortgage broker and try to get approved at an alternative lender, also known as a B lender, through the services of a professional mortgage broker.

A B lender would charge higher rates than a traditional institutional lender, but the fixed rates will still be lower than in a mortgage from the private sector. Examples of B lenders include trust companies and certain credit unions. If the borrower has a severe problem with their credit and is declined by a B lender, they would then turn to one of many private mortgage lenders that are accessible through your Mortgage agent and broker for a short term private mortgage.

A 1 year term is most common when it comes to a private mortgage. If this is a problem for you and a shorter or longer term might be a better choice, those types of private mortgages are available through certain mortgage lenders who lend using their own private funds. Terms start from 6 months for a private home loan and can be as long as 3 years for a private first mortgage, second, or third mortgage depending on the lender.

A private mortgage is an ideal short term solution for someone who almost qualifies at a B lender but might need some time to either build up their credit, save up a larger down payment, or grow their income and net worth. In this case, private is the way to go.

Unlike traditional lending institutions, private mortgage lenders lend primarily based on the value of the property, the equity remaining in the real estate, and they even take into consideration the city where the property is located in.

Types Of Private Mortgage Lenders

Here are the 3 most common types of private lenders:
Individual lenders: When an individual is investing their own personal money towards private lending, they are considered to be an individual lender.
Syndicate investors: When a group of investors invest their personal funds as a group into one mortgage, it is considers a syndicate mortgage.
Mortgage investment corporation (MIC): When a group of investors pool together their personal funds and make them available to invest into several different mortgages at simultaneously, provided that the borrowers meet specific criteria to qualify for the loan, this is known and a Mortgage Investment Corp.

Interest rates for a private mortgage depend on a variety of factors including the loan amount, the value of the property, the location of the property, and other factors. Private mortgage interest rates start as low as 5.5% to as high as 13% for a private first mortgage and as low as 6.99% to as high as 18% for a private second mortgage depending on the different factors that matter to the specific lender.

Individual private investors typically have the ability to offer better interest rates than a MIC because a MIC needs to provide a higher rate of return to their investors while also leaving extra interest to pay themselves.

Since private lender usually charge higher interest rates than conventional mortgage lender, borrowers would only seek out a private lender when they get turned down by the banks and by other alternative lenders such as Duca Credit Union, Equitable Bank, or Hometrust.

Banks and other institutional lenders pay Mortgage Brokers a commission on every mortgage that the brokerage gets funded from them. Private lenders, however, do not pay the brokerage any commission and therefore that fee is passed along to you. Also, because private mortgages typically carry more risks to the lenders, private lenders will charge an additional lender fee to the borrower along with a small legal fee incurred by the lender. Depending on the loan amount, the borrower might be required to use the assistance of their own lawyer to represent them in the transaction.

The total fees that you can expect, including the lender and broker fees, but excluding the legal fees can range from a little as 2% to as much as 10% of the total loan amount, depending on the size of the loan, the complexity of the deal, and the risk to the lender.

The good news is that in most cases, these fees are subtracted from the loan when it is funded to ensure that you do not go out of pocket to pay for these costs.

For example, if you are applying for a $100,000 private first or second mortgage and the lender and broker fee is 4% in total, plus the legal costs amount to $2,000, then your total closing costs on the mortgage would be $6,000. In order to cover these costs, you would simply apply for a mortgage of $106,000 instead of $100,000, so that all of the closing costs are paid directly by the loan rather than out of your pocket.