With a private mortgage, you don’t borrow from a bank. Instead, you borrow from another person or business. This means the decision to lend is mostly based on the equity, value and marketability of the property being put up for collateral versus the credit and income of the borrower. This is what we call equity lending.
Having said that, the private lender will need to know you are able to pay back the loan and they do want to have a look at your credit history to see how you have been paying other debts in the past.
You will be charged a higher rate than what you would pay with the banks and the private lender will also charge an upfront fee that will be deducted directly from the mortgage proceeds. Most often, the rate and fee you are charged will be determined by your ability to make payments and your past credit history.
There are many reasons why someone would be interested in obtaining a loan like this, however, one scenario that immediately comes to mind is when an individual is self employed and doesn’t fit the strict bank guidelines for a stated income mortgage. They may have just recently started their business or they have some credit issues.
Other reasons may be collections, judgments, bankruptcies or foreclosures.
If you do not qualify for a mortgage with the bank for any reason, we strongly suggest you speak to one of the Mortgagegirls who can advise if a private mortgage is for you and most importantly what actions you need to take so you can someday down the road qualify for a mortgage with the bank at best rates.
* This data is provided for information purposes only and is updated daily by Mortgagegirl. Posted rates are subject to change without notice. O.A.C. E&OE.