Most people needing home loans turn to private moneylenders to obtain extra money to fund their venture to real estate investing. Note that there are various types of real estate loans available to borrowers by these private lenders. However, they also offer traditional mortgage. In this article, we will discuss the benefits borrowers will get from taking out mortgage from private lenders:
- Most loans from private lenders are underwritten and are easily obtainable despite not having excellent credit scores or credit ratings
- Mortgage loans from private lenders are often made to fit according to a borrower’s specification
Because banks and similar institutions are using public funds and investments to grant loans and credits to borrowers, they do not lend fund to people who are deemed as high risk, particularly those with low credit scores. Apart from this restriction, government sponsored groups like Freddie Mae and Freddie Mac, have placed several underwriting guidelines that make it extremely hard to secure mortgage loans. In order to qualify for mortgage loans provided by traditional financial sources, borrowers need to have excellent credit report, credit rating and a credit score of no less than 700.
Obviously, not many of us can afford to have excellent credit scores and credit ratings especially with the way the economy is going. For people who do not qualify for traditional mortgage could always turn to alternative funding sources like private lenders to get the money they need to purchase properties.
Unlike banks and similar institutions, private lenders use their own funds to provide mortgage to people with less than perfect credit histories. In exchange for the loan, borrowers will be charged with higher interest charge and are usually secured to some or other assets. Additionally, the loan will require high late payment charges in case the loan is defaulted.
There are different types of loans offered by private lenders and the most common is average mortgage loans. These loans are used mainly to purchase real estate, which is then pledged with the lender as collateral. The repayment period from this type of loan spans for several years and in some cases, up to two decades. The current interest charge for mortgage loan from private lenders is around 5% to 6%.