Private mortgages can be just the thing for the homebuyers who, otherwise wouldn’t be able to obtain a mortgage through conventional methods, such as going to a major lender. With a private mortgage, a private individual or organization provides the money for the loan. These lenders aren’t necessarily affiliated to the mortgage industry, and they may not always offer these types of loans.
Private mortgages are often the only answer for homebuyers who have bad credit or a very small down payment. However, just like with any other mortgage, there are certain things to take into consideration.
You need to make sure that a proper loan document is provided and that it fully outlines the terms; such as the rate you’ll be paying, the length of the loan term, and the conditions in case of a default in payment. Each of these terms has its own considerations, but you’ll want to make sure that they’re all outlined in the mortgage contract.
Just because you’re dealing with a private lender doesn’t mean that the agreement is casual in any way; you need an actual and official loan document detailing every aspect of the loan.
Things you need to look at in that document are:
- The term of the mortgage- Private funding house generally come with shorter terms because the private lender is not in the business of loaning money. You not only need to be aware of the shorter term, but you also need to determine if you can afford to pay the loan within that term or not. If you don’t think you’ll be able to pay the mortgage off within that term, you need to ask the private lender if you’ll be able to refinance at that time. If not, that private mortgage option isn’t the best one for you.
- The interest rate – is another thing you need to consider with any mortgage you apply for. However, it’s important to know that the interest rate of a private mortgage is likely to be higher than what you’d pay on a traditional mortgage. Since private lenders are usually taking on more risk, they charge a higher rate for that risk.
- Default – One thing that many people don’t realize about private mortgages is that default can be more than just a missed payment. While missing a mortgage payment is an obvious form of default, some private mortgage companies also consider default as being other things such as making unauthorized renovations to the home, or a late payment on taxes or property insurance. It’s extremely important that you know what your private mortgage lender considers default, so you can make sure that you don’t fall into it.
Private mortgages can be the answer for many homebuyers who think there is no other mortgage option. However, it’s important that you know the most important things to consider when applying for one, and always have a lawyer check over your private mortgage contract. Just because the mortgage is private doesn’t mean that you can’t have a lawyer look it over just to be sure.