Private Mortgage Financing

Private Mortgage Financing

What is Private Mortgage Financing?

Private Mortgage Financing/lenders can be wealthy individuals who are searching for a better return on their money.   They work with lawyers, other individuals or set up their own companies to loan out money to consumers.

Private Mortgage Financing is mainly based on the property/real estate  and how much equity in the property.   A private mortgage lender is not concerned with credit or income, but will review both to get an overall feel for the applicant.   Their main driving force behind the loan is the property.  The more equity in the property the more secure the loan and as a result the better interest rate for the client.   Private Financing will lend on properties outside of the box such as churches, farms and raw land. Construction financing both residential and commercial for small and large projects is popular in private financing because the lenders do not impose the stringent guidelines that banks or other institutional lenders do for construction financing.

Private Financing provides a short term or quick fix solution for clients who having difficulty in obtaining financing through more traditional lenders.   The loan terms are usually short and not over 1 year period. Interest rates and fees are higher than traditional lending with a maximum loan to value of around 75% to 85%.

Second mortgages fall under Private Financing.  Second mortgages are a popular lending source for clients who can only get a first mortgage say up to 70% but need 80% or even 90% in some cases.  A second mortgage can be set up for the other 10% to 20%.   An example would be a client who needs to finance a property purchase but does not qualify through a bank or other institutional lender for the full mortgage so may need to get a first mortgage up to 75% and a 10% second private mortgage up to 85%.  Another example of a second mortgage scenario is a client who may need to refinance to draw out some equity but does not want to break their first mortgage because of a high penalty cost or good interest (or both) and will therefore set up a second mortgage instead.  This can make sense  especially if the second mortgage is for a small period of time.  Clients selling their home may require a second mortgage to renovate or fix up their home before listing.

Because of the less stringent qualifying rules based on applications, Private Mortgage Financing is not cheap.  First Mortgages interest rates can be from 7% up wards and second mortgage interest rates are usually between 10% to 15% with loan fees.   The terms are short, no longer then one year but one can renew again for another year.

Contact Robert Clancy today to learn more about Private Mortgage financing.