Although a private mortgage usually has high interest rates and short loan periods, it also offers borrowers some benefits. A big benefit of a private mortgage is the relative ease of qualifying for the home loan. A private mortgage also takes a shorter time to process, giving the borrower the ability to close the deal quickly. The borrower also can usually provide fewer financial documents for the lender to review.
Banks and traditional lenders usually determine whether to provide a loan based on the borrower's credit score, which mainly depends on the way he or she has handled debt in the past. If the borrower's credit score is not high enough to qualify for a conventional mortgage, the lender would reject his or her loan application. Credit scores range from 300 to 850, and lenders usually consider a credit score of 620 and lower to be bad credit.
On the other hand, when a borrower applies for a private mortgage, the lender usually looks beyond his or her credit score to determine whether he or she qualifies. A private mortgage provider focuses more on the property: its appraised value, its potential to generate cash inflows, its condition, its location, and the amount of equity the borrower has in it. This makes a private mortgage attractive to borrowers who have low credit scores, already carry large debts, or cannot show proof of income. If a homeowner faces foreclosure, he or she might be able to get a refinance through a private lender so that he or she could still keep the home.
A traditional lender carries out various checks on the borrower before giving him or her access to the funds. This process involves reviews of the borrower's financial documents and could take up to 90 days. This could cause delays in the borrower's schedule, making him or her lose potential cash inflows or even lose the deal.
A private mortgage provider could provide the loan funds as quickly as 24 hours after receiving the loan application. The borrower could close the deal quickly, giving him or her a competitive edge against other buyers who compete for the same property. The borrower could also earn rental income during the time usually spent waiting for the funds to come through.
Traditional lenders require the borrower to provide various financial documents, including proof of income and tax information. The borrower could lose time gathering his or her financial documents. In addition, the borrower might have to reveal more information than he or she is comfortable with.
Private mortgage providers tend to be less invasive compared to traditional lenders. When applying for a private mortgage, the borrower often only has to provide documents that relate to the property. He or she may not need to reveal all financial details, retaining some privacy.
