A Private Mortgage Facilities or Private Financier may be an alternative and quite different option to your typical bank or credit society. In most cases approval rate is quite high and is typically 90% of all applications submitted. If you are finding it difficult to get a home loan, commercial loan, industrial loan or construction and development facility, start-up business facility from conventional lenders, such as banks, credit unions or building societies, you might consider to explore few different avenues and take a closer look to Private Money Lenders. However, there are some possible pros and cons and downsides to be aware of.
People typically turn to the private mortgage facilities or private lenders because they are finding it hard to obtain finance from a traditional lender for reasons that can vary from having a bad credit history to be a highly-leveraged property investor or lack of financials, property being held in trust, or company etc.
So, let’s look at what a private mortgage facility is, what types of loans private lenders can offer and what are some of the potential benefits and risk of obtaining finance from this sources.
What’s a private mortgage?
A private mortgage is typically is financial instrument for securing title on land and is not issued by a bank or a traditional lender. Instead, the loan comes from an individual or business sources with access to a private pool of funds. Most private lenders specialise in providing short-term financing, bridging loans, mezzanine financing, caveat loans and second mortgages etc. Usually its 12 months facility, which can be extended for another term if its required. However, roll over fees and other fees may apply. You need to be crystal clear about that and be aware of this type roll over fees and charges.
There are four main types of loans that private lenders offer. They are:
Bridging loans Or Interim Loans
They are usually interest-only loans that are repaid once you sell your existing property. Typically, this type of finance is pre-paid facility for the term of the loan. Once your property is sold and settled, Bridging Loan is usually repaid in full. There are also risks considering, including not being able to sell your home in timely means. You do need to have an exit strategy, in the event , things might go not the way you expect.
A caveat loan gives the creditor an interest in your property, which means you are using your property as security for a loan. It’s much easier and time effective method to obtain this type of loan , compare to other financials instruments in today’s market. Legal documentation is relatively simpler and more cost effective for both parties. Greater loan to value ratios is usually applicable for this type of transaction, some lender will go to 90 % of your property value. On another hand, its attracts slightly higher interest rate and shorter timeframe to repay it. So, you, as a borrower require t have a clear exit strategy before considering this type of finance option.
What are the possible benefits?
If you do have an urgent settlement to attend or if your traditional finance sources been declined or delayed, etc. then private mortgages facility or private lender is a very good option to consider. It could also make good sense for facilitate this option for people with a poor credit rating or low credit score or those who need a loan immediately and would like to settle within 24 hours. Typically, this type of loans are pre- paid facility, therefore normal lending criteria may not be applicable.
Some of the potential benefits include:
Speedier settlements – With Basic Finance approval process can be obtained as quick as 10 minutes or even over the phone and involve less form-filling than what’s involved with applying for a traditional loan.
No credit checks- With Basic Finance we don’t penalise people for having small mark on their credit report and credit score is not applicable with us
No Financials – sometimes in business you don’t have time or ability to provide financial statements and tax returns in timely manner. With Basic Finance you don’t need to. We usually pre pay your loan for the agreed duration , so you can complete your tax obligations and move on.
How to find a private lender?
A simple Google search, word of mouth joining a real estate investment club or talking to a mortgage broker can help you get in touch with a private lender.
Before committing to a loan from private investor or private financier it may be a respectable idea to reflect not just the interest rate on offer, but also any fees or other conditions associated with the loan. We strongly recommend our client to approach legal counsel or accountant who will provide you with independent legal and financial advice.
Is a private mortgage right for me?
You may find it useful to talk to a financial planner, solicitor, and accountant and carefully chose which financial instrument will be the best for your current situation and why?
If you decide a private mortgage is not for you, then you may want to consider a traditional lender instead.