Private Mortgage: Pros & Cons Explained
As times go by, borrowers are being subjected to strict lending requirements that are making it hard to get the lowest mortgage rates in Quebec. If you are having a hard time qualifying for a conventional mortgage, you may want to consider applying for a private mortgage. What is a private mortgage? A private mortgage is where you approach a private mortgage lender who will lend you the money you need to buy your house. You can get in touch with these private investors by joining an investment club in the real estate arena. Let's look at the pros and cons of applying for a private mortgage loan.Pro: Easy to qualifyHomebuyers with a bad credit or are unable to qualify for a traditional mortgage can easily apply for a private mortgage. Private mortgage is more "property" focused rather than "person" focused, meaning that one can get a private mortgage loan as long as the project being funded shows likely profit. Self-employed homebuyers do not have a steady proof of income which is required when applying for a conventional mortgage which can lead to disqualification. Private mortgage lenders are willing to loan self-employed homebuyers with the money they require to get their dream homes.Con: Higher interest ratesPrivate mortgage loans have high interest rates compared to conventional mortgage loans. Private mortgage lenders are business firms who are willing to lend money to homeowners and in turn make profits through interest paid. These private lenders are not regulated by loans boards like traditional mortgage lenders which means they can charge higher interest rates.Pro: Short approval processConventional mortgage loans require 30 to 45 days to be approved while private mortgage loans take a shorter time. Borrowers looking for quick financing can apply for private mortgage loans which require lesser processing time compared to traditional loans.Pro: Great option for flippersSome properties require extensive renovations before a home owner can move in and most conventional mortgage lenders are reluctant to fund such projects. Private mortgage lenders are willing to fund homebuyers looking to buy properties that need to be fixed up with an intention of selling them later. If you have an eye on a property that you are sure would give great returns after renovations and don't have the funds to acquire it, you can approach a private mortgage lender for a loan to make the purchase. However, ensure that the property you are about to acquire is worth the investment and has great returns.Con: Short payback periodConventional mortgage loan terms can take up to 30 years where a homebuyer is supposed to make monthly paybacks with interest. On the other hand, private mortgages require a shorter loan term where a borrower is supposed to repay back the loan for not more than two years. Private mortgage lenders often look for quick returns therefore they give shorter loan terms.As mentioned earlier, these loans come with a higher interest rate which means people with unstable income can easily shy away from such offers. Before agreeing to sign off on a private mortgage loan, ensure that you fully understand the terms given to avoid late payback penalties and also decide whether you can meet these terms. In the case where you are unable to pay your loan, private lenders take full ownership of the property acquired which can lead to great losses.If you'd like to know more about private mortgage, contact a mortgage broker company for more details. They will best advice you whether to look for private mortgage funding or to apply for a traditional mortgage loan depending on your current financial status. Always look for a reputable mortgage company to help you acquire your dream home.