Private Mortgages

When most people require owning a new home, they generally approach a bank to obtain a loan. However, it is not always necessary that one should go to a bank for a loan to buy a new home. There may be instances when you may possibly come across a seller who is eager to provide you with a private mortgage. Conditional on your situation, it may be the most appropriate thing for you.

It may be noted that private mortgages are known by various names. Often, private mortgages are known as 'wraparound loans' or 'land contracts'. Irrespective of the name being used for a private mortgage, they actually work in incredibly simple manner. In this case, the seller of a property offers the mortgage to the prospective buyer and once the buyer has taken the mortgage, makes imbursements to the buyer. In most cases, the agreement is prepared in such a manner that the buyer will ultimately undertake a usual mortgage after some time. Often, private mortgages also incorporate a balloon clause that says that during the end of the mortgage, the buyer will be required to make a bigger payment and settle the entire loan amount. In fact, even the conventional mortgages also include such balloon clauses. However, in the case of traditional mortgages the payment amount at the end of the mortgage is a comparatively lesser sum. It is important to note that in the event of taking a private mortgage, the land title or the authentic rights of the real estate property are not transferred to the buyer till the time the buyer has reimbursed the total loan amount or mortgage sum to the seller or till the buyer undertakes a traditional mortgage.

Private mortgages offer several advantages to the buyer as well as the seller. A private mortgage offers the buyer the prospect of discontinuing paying rent and possessing their individual home. The buyers are able to avail the facilities of a private mortgage despite their credit rating being poor or even in case they do not have sufficient money for down payment to be qualified to get a traditional mortgage. On the other hand, by offering a private mortgage, the seller too is able to lure potential buyers who are generally believed to by risky by the lenders. In addition, offering a private mortgage may help sellers to sell their home which has been listed on the market for quite some time or sell a home which they might be finding difficult to sell owing to the conditions the property is in.

Some people may still have doubts about the benefits of a private mortgage to the seller. They may wonder as to what would happen to the seller, if the buyer pulls out of the agreement or arrangement. Well, they need not worry regarding this at all. In case the buyer fails to pay or turns out to be a defaulter, the seller still continues to keep hold of the property title or ownership of the home. Remember, the title of the property is transferred only when the buyer has cleared the entire mortgage amount to the buyer or have taken on a traditional mortgage. Therefore, they are never at risk of losing their property to the buyer. In addition, in case the buyer defaults, the seller is not liable to return the money he/ she have received from the buyer as part of the mortgage payments thus far. The only problem for the seller would be start all over again to find a buyer for their home. This will really be something that the buyer needs to spend time and effort on again.

In case, you are facing any difficulty in obtaining a conventional mortgage or if you have any reason to particularly interest in undertaking a private mortgage, it is advisable that you talk to your mortgage broker or any real estate agent. The mortgage broker actually belongs to the arrangement of sellers and buyers, in addition to other investors and real estate agents and will surely have a list of good number of property which is being proffered with a private mortgage by the seller.

In the event you are finding it difficult to be eligible for conventional mortgages or home financing, irrespective of the reason, you might wish to mull over taking on a private mortgage. In fact, the private lenders substitute for banks which might be reluctant to or incapable of being of any service to the borrowers who fail to fulfill their stringent stipulations for traditional mortgage financing.

When is a private mortgage required?

There are different types of people who look for private financing when they are looking to buy a new home. Some of these types of prospective property buyers are discussed in brief below.

Poor credit rate
In the event of having a poor credit or an absence of credit rating, it is very likely that the conventional money lenders will refuse to grant you a mortgage for your new home.
While individuals who work for themselves might make plenty of money, sufficient to fund a home purchase, their records might demonstrate breaks or unpredictability in their flow of income. In fact, such breaks in flow of income may seem to be akin to red flags to the conventional lenders and, thus, they generally refuse to grant mortgages to self-employed people.
Debt consolidation
For many people, debt or owing money to others is a fact of life. When they require financial help, many people fall back on the equity in their home to obtain a debt consolidation loan. It has been seen that compared to the traditional lenders, the private lenders are more helpful in such situations.
Property considered risky
Generally, traditional lenders do not accommodate applications for home funding or a financing rental property, unless they are located in any established environs. On the other hand, the private lenders consider each property separately and assess its prospective.
Second mortgage
In case you are looking for a second mortgage to receive funding, either to fund renovations at your home or for debt consolidation, it is likely that compared to a traditional lender, you will get superior terms from a private lender.
Bridge financing
In the event of you selling one home and acquiring another one, you are likely to require bridge financing to help you to arrange for money till you are able to sell your first home. In effect, it has been seen that traditional lenders are not very comfortable with this type of lending.

How can you take a private mortgage?

If you are wondering what exactly a private mortgage is, it may be said that a private mortgage is fundamentally identical to a traditional mortgage. In this case, only the lender is different. In most cases, people who are not eligible for securing a conventional mortgage are generally successful in obtaining mortgages from private lenders. In fact, private lenders are more eager to venture on highly risky borrowers and provide first as well as second mortgages when any borrower is refused a loan by the banks. However, locating the correct private lender requires some hard work.

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