As lending regulations become increasingly strict, private mortgage financing is emerging as a significant source of mortgage funding. Often, there are situations in which banking institutions are unable or unwilling to lend. In these cases, seeking out a private lender becomes a preferred option.
A private lender is an individual or an organization that advances funds in exchange for a mortgage on agreed terms and conditions. Essentially, a private mortgage is a bridge or mortgage loan that is secured by real estate. The most common situations funded by private lending tend to be properties that are nearing foreclosure, or applicants with below average credit, however there are many other situations in which a privately funded mortgage can assist: Construction projects, quick closes for property acquisitions and commercial financing for property types not supported by banks, to name a few.
Private lenders are increasing in numbers, as real estate becomes a more lucrative investment than the stock market. Many private lenders tend to use their services in a regional nature, as specific market knowledge is essential when dealing with what can be viewed as high-risk investment opportunities. It is important to note that privately funded mortgages tend to carry slightly higher interest rates than traditional mortgages, and often include lender fees.
Some of the benefits of a privately funded mortgage include:
Interest only payments
Second mortgages available at a higher loan-to-value ratio than a bank would offer
One or two year terms are available
Lending decisions are made quickly
If you require short-term real estate secured funding, or are simply in need of an alternative means of acquiring a mortgage, private lending could be your solution.