Is It Better to Turn to Private Lenders than Banks?

Strict mortgage rules and lower amount limits are forcing homeowners to turn to private lenders instead of doing it the conventional way, which is applying for a loan through banks. Studies show that there’s a significant rise in the number of people who have requested a private lender to finance a mortgage.

Many people turn to private mortgage lenders because they want to add to their existing mortgage, which is almost impossible to do with banks. Such a loan is called the second mortgage, and it is quite a popular way to get extra funds these days.

Why Do You Need a Second Mortgage?

There are many reasons why one needs a second mortgage and it may be as trivial as taking an out-of-the-country trip to as serious as facilitating a complicated medical operation. Either way, the need for a second mortgage is real. But the truth is that many homeowners are also living beyond their means, which may affect their credit score despite having great jobs.

Aside from homeowners, there’s another group of people who may need the services of private mortgage lenders and these are real estate investors. People solely relying on rental income for everyday support are the ones that are most affected by the more stringent laws on bank loans and financing. As such, they have no choice but to turn to private lenders if they get stripped out of cash or if they need to refinance.

What Are Private Mortgage Lenders?

Private lenders may be corporations, groups, or individuals that have the capital to lend people a huge amount of money. There are a lot of private lenders these days, and their rules for approving a loan are not as strict as that of a bank or financial institution. Private mortgage lenders can do this because they are not required to take deposits as banks do. As such, they can make riskier loans.

People may think that other than banks, credit unions are their other choice. Unfortunately, even credit unions are voluntarily following the same stricter mortgage rules imposed by the federal law. That’s the reason why they aren’t a good choice these days either. This makes private lenders the only feasible option for unqualified borrowers.

How Does Private Mortgage Lending Work?

Think of private lenders as entities that can provide you with a short-term loan to fill any gap in your finances. Many people have found the services of private mortgage lenders helpful in getting them out of complicated financial situations using their real estate property.

Imagine yourself owning a $500,000 home that badly needs repair and having a $100,000 mortgage on it. If you have a poor tax and credit record, you won’t be approved of any loan from the bank. Now if you can’t pay for that $100,000 as stipulated, the property will be foreclosed.

What if you can borrow some $200,000 off the property through a private lender so you can pay off the mortgage and do some repairs at the same time? Surely, after you have sold the property at its market value, you’ll be able to write off your debt from the private mortgage lender and keep the difference. That’s one good way second mortgages and private lenders can work for you.

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