Recently, getting approval for mortgages have become somewhat difficult. Most financial institutions have cut back on loans to individuals even when they publicly state the opposite. This situation has made thousands of people who want to buy property search for an alternative in Private Mortgage.
Banks aren’t the last resort when mortgage loans are needed, private mortgage offers more hope to potential home owners. Private mortgage is a mortgage that is not issued by a financial institution but rather, it’s a mortgage loan or fund that is sourced from an individual, a pool or a group of people.
There are a lot of large financial institutions out there, banks, online lenders, credit unions etc. Accessing a loan from them might need a lot of documentation, and sometimes your credit score may not look satisfying to the bank even in instances when you can pay back. It can be difficult to find the right financial institution who will help you out with the right loan type for you, which is why it may be important to work alongside finance professionals to help you identify private mortgage loans.
Private Mortgages are mostly common among family members, friends, acquaintances, generally, people you’re comfortable loaning money to. The rationale behind this is that you may know someone who has extra cash at his disposal that he can lend. Lending will accrue more interest when compared to what the bank will offer if it stays in an account, and lastly the borrower pays a relatively small interest rate and can save money in the process without much pressure.
Here are some tips when giving private loans
- Set an interest rate: you have to charge at least the minimum amount of interest. The aim of this loan is for the borrower to find it easy when paying so the interest should be considerate.
- Promissory notes: The terms, interest rate and repayment period should all be contained in the promissory note.
- Plan for unforeseen events: this is the most important aspect for both lenders and borrowers, discuss what happens when there is a financial crisis and there’s difficulty in payment. Before everything goes awry, you can hire the services of an attorney or companies like National Family Mortgage to serve as a mediator. As a lender you can decide to get a get a deed of trust which means the lender can take the property in a situation where the borrower can’t pay back.
If you are business owner or freelancer and you are having trouble getting a loan then you may need to look at low doc mortgage loans, if this sounds like you then visit this page. Before you consider borrowing privately it’s best to fully understand what you’re getting into before agreeing to either give or take a private mortgage loan, listed below are some of the risks associated with a private mortgage loan:
- This kind of loans are always given with good intentions. In the long run, the relationship between the lender and the borrower may change if the borrower faces difficulty in paying. The lender is faced with the dilemma of either being strict with the payments and risk ruining the relationship with the borrower or simply accepting his loss. On the part of the borrower, he comes under a lot of stress and guilt for not paying up, which will also strain the relationship.
- The real estate market is not immune to fluctuations which may lead to dramatic changes in price of property. As a lender, you have to ascertain and be comfortable with the location and condition of the property before giving out loans.
- Property maintenance takes a lot of money and time. Be sure the borrower will have the capacity to maintain the property without it affecting the loan repayment.