Real Estate

Cons and advantages of private mortgage loans

Private money loans are also known as hard money and come from private lending companies that offer home buyers loans to purchase a specific asset. In general, homebuyers often find these lenders by joining a real estate investing club in their area. These loans are often guaranteed by real estate investors. But unfortunately, not all homeowners will be successful in obtaining funds from a private lender. These are the main pros and cons of private mortgage loans.

This loan could be a great option for homebuyers who can’t qualify for a traditional mortgage due to inaccurate credit or debt, or for self-employed people who can’t always provide proof of a stable income. . A borrower should remember that a person with a poor credit history can get a hard money loan if the project shows a profit.

Personal loans are not repaid in 30 years like a traditional loan. A lot of private lenders expect the loan to be repaid in a very short time, like six to twelve months. Lenders are often looking for a very quick return on your money and are generally not prepared to offer a multi-year loan like a typical mortgage company does. Homes that need additional renovations generally cannot qualify for conventional mortgages, no matter how much better the borrower’s credit score. In those cases, private money can play a very important role. A non-traditional lender can step in and offer financing to get the house in salable condition and then trade in the house.

One of the main drawbacks of personal mortgage loans is the interest rates. Interest rates are much higher with a private money loan than with a conventional loan. Sometimes mortgage rates even more than double, often 12 to 20 percent per year. Basically, mortgage rates are very high because private lenders don’t need exact credit. Funds from private lenders are generally secured by the property in question, so whether or not the debtor has good credit is generally not very important to the lender.

If you own a home that you think is a candidate for a personal loan, the approval process often takes just a couple of weeks, in contrast, it takes 30-45 days for a conventional loan. For many borrowers, qualifying for a loan faster is a very good trade-off for higher interest rates. Private money lenders generally do not require a lengthy loan process like a conventional mortgage does.

If you have a home and want to rehab it, and you think you could improve it enough to increase its value in a short time, allowing you to pay off a personal loan and replace it with a conventional sale, then applying for a private loan is a viable option. As long as you understand the caveats and complete your research, there is a chance of successfully securing a property without a conventional loan.

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