Private Mortgage Funding – Why You Might Need It
A Private Mortgage Funding Lender or Private Financier can be an alternative, little-known option to your typical bank or credit society. Approval rate is quite high and typically 90% of all applications submitted are approved. Are you finding it difficult to get a home loan, commercial loan, industrial loan or construction and development facility, start-up business facility from conventional lenders? Lenders such as banks, credit unions or building societies have stringent approval processes that can be difficult to get private mortgage funding. This is the primary reason you would consider taking a closer look at Private Money Lenders. However, there are some benefits and drawbacks to be aware of.
People turn to the private mortgage funding or private lenders due to finding it hard to obtain finance from a traditional lender. Reasons for this can vary from having a bad credit history, being a highly-leveraged property investor, or lack of financial documents, the property being held in trust, etc.
So, let’s look at what private mortgage funding is. What types of loans can private lenders 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 defined as a 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 a 12 month facility, which can be extended for another term if it’s required. However, rollover fees and other fees may apply. You need to be crystal clear about that and be aware of these fees and charges.
There are four main types of loans that private lenders offer. They are:
Bridging loans Or Interim Loans
They are interest-only loans that are repaid once you sell your existing property. This type of finance is a pre-paid facility for the term of the loan. Once your property is sold and settled, Bridging Loans are usually repaid in full. There are also risks to consider, including not being able to sell your home within the time frame. You do need to have an exit strategy in the event that things don’t go as expected.
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, compared to other financial instruments in today’s market. Legal documentation is relatively simpler and more cost-effective for both parties. A greater loan-to-value ratio is usually applicable for this type of transaction. Some lenders will go to 90% of your property value. On the other hand, it attracts a higher interest rate and shorter timeframe for repayment. So, you, as a borrower are required to have a clear exit strategy before considering this type of finance option.
What are the possible benefits?
Do you have an urgent settlement to attend or traditional finance sources been declined or delayed? Then private mortgage funding or other private lender is a very good option to consider. It could also make good sense to facilitate this option for people who have a poor or low credit score. As well as for those who need a loan immediately and would like to settle within 24 hours. Because these types of loans are apre- paid facility, normal lending criteria may not be applicable.
Some of the potential benefits include:
Speedier settlements – With Basic Finance’s approval process can be obtained as quickly as 10 minutes or even over the phone. It involves less form-filling than what’s typical when applying for a traditional loan.
No credit checks – At Basic Finance, we don’t penalise people for having a small mark on their credit report, and a 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 a timely manner. With Basic Finance, you don’t need to. We usually prepay 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 sensible 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 clients seek legal counsel or an 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 an accountant. They will help you select which financial instrument will be the best for your current situation.