A private mortgage lender is an individual money lender who provides loan amounts to borrowers with bad credit when he/she fails to acquire the same from a lending institution, bank or government entity. In many cases borrowers prefer to borrow money from private mortgage lenders for different other reasons like discretion, privacy and certain other benefits that would be discussed in the article. Loans lent by private mortgage lenders are basically short-term lasting somewhere between 6 months to 2 years. They are usually based on assets and provided to a professional investor in real estate for the purpose of purchasing, rehabilitating or getting equity cash from real property. The property is pledged as collateral for the loan, thus the decision to lend by a private mortgage lender is frequently based more on the value of the property and less on the quality of the borrower’s credit. The loan provided by private mortgage lenders is typically not greater than 65-70% of the property’s appraised value. Land or property does not produce income and thus applies to vacant commercial property or land which will generally produce the loan-to-value ratios of 55-60%. You should expect the interest rates on these loans to be significantly higher than the rates on conventional loans, ranging anywhere from with 4-10% above the prime rate. A borrower feels the need and requirement of a private mortgage lender under certain situations which does not qualify him/her to acquire conventional mortgage loans due to past credit issues or substantial debt conditions. In many cases a borrower seeks financial assistance from private mortgage lender when he/she fails to qualify for loans in case the property does not produce enough cash flow to qualify for the loan.
Private mortgage lenders evaluate and consider the appraised value and the money-generating potential of the property as the security against the loan and not the borrower’s credit. And thus, the borrower’s income and credit are factors that are considered less crucial in the approval process for the funds. The lending process of conventional mortgage is quite time consuming as it takes around 60 to 90 days involving formal property appraisals, detailed review of the borrower’s financial state, credit history and financial statements and tax returns for the property etc. In that case, the benefits provided by a private mortgage lender are quite considerable because of the speedy transaction of mortgage amount which takes around just 10 days to complete. A private mortgage lender can usually determine on the entire process within 24 hours of receiving all the pertinent information. As traditional lenders take several weeks to commit for a loan, private mortgage lenders appear to be more attractive to those who need a quick turnaround. Apart from these benefits, private mortgage lenders make sure to protect their clients’ privacy of financial information and transaction while working in efficient discretion.