Are you having trouble qualifying for conventional mortgages? An alternative mortgage solution will come in handy in this situation respective of your income or credit score. Private lenders are willing to give homebuyers a loan to purchase a property. If you can’t prove to have a steady income,a private mortgage is a good option. You may be wondering what the pros and cons of private mortgages are?
Private mortgage rates.
The degree of risk taken on the borrower’s application leads to increased private mortgage rates. The private mortgage rates are not fixed and it varies depending on the property, financials, and borrower. The rates of the 2nd mortgage loans differ depending on the real estate location and home equity amounts. Consider all costs involved when looking for private mortgage rates. Consider the lender’s fee, introductory rates, and payout penalties.
Pros of a private mortgage.
- It is easy to qualify.
The private mortgage lenders emphasize more on the invested property rather than the borrower. Poor credit scores and low income is not considered a problem by most lenders. Their interest rates are high and it provides the lenders with an added level of security. A homebuyer can easily and quickly get approved for the loan. To qualify, you should be able to pay your interests on time.
- The approval process is short.
You will need to show the lenders the prospective house you need the private loan for. The drawn-out loan process for a private mortgage is shorter compared to that of a conventional mortgage. The approval process for a private mortgage can take a couple of weeks. If you can improve a house and increase its worth in a short period, you may convince the lenders you can pay off the loan after selling the renovated house.
Before releasing the funds, the private lenders determine if you qualify according to their own rules. Private lenders are flexible enough to help an investor with a non-traditional job.
Cons of a private mortgage.
1) The payback period is short.
The private lenders expect their money back within a short time. This time could range between 6 months to 2 years. A mortgage broker will help you to create a plan for paying the loan within the required time. They will look at your needs, ensure you understand the terms and conditions, and advise you whether a private mortgage is a good option.
2) High-interest rates.
When compared to conventional mortgages, the interest rates of a private mortgage are higher. It is because a bad credit score is not a requirement and the property is used as a security for the loan.
3) Extra fees.
Legal fees, lender fees, and broker fees are additional fees that private mortgage loans require.
A private mortgage has enabled many homeowners’ dreams to come true. Homeowners who can’t get approved for conventional loans due to bad credit or low income stand a chance with private mortgages. Loan approval is easy to qualify but it has its downsides too. Weigh the pros and cons of a private mortgage and determine if it fits your needs.