16 Sep Reasons Why Private Mortgage Loans Are Common
The reasons are diverse, and they can all be attributed to the fact that the common mortgage loans lack the flexibility that private mortgages have. Private mortgage loans are offered by private individuals. Despite the fact that the big financial institutions including bank, lending institutions or government agencies are actively involved in the mortgage market, private mortgage loans have managed to carve a distinguished specialty for themselves.
The Basics of Private Mortgages
Private mortgage loans can be described as short term hard money or asset-based loans. In a nutshell, these loans are granted to prospective lenders on the basis of the true value or worth of the property put up as collateral, and not necessarily based on the lenders credit. For those who don’t like the process of the traditional loan system, private mortgage loan system is a great option. This loan is great funding source for real estate investors who wish to invest, or renovate income yielding properties. Private mortgages are easily accessible and are less time consuming. They are also very safe loan methods as they represent about 70% of the total worth of an income producing property.
Interest rates are slightly high in private mortgage loans when compared to conventional bank loan system. However, even though interest rates are significantly lower in the traditional mortgage loan system, people still seem keen on the private mortgage loan system, regardless of the high interest rate. This can be attributed mainly to the easy accessibility of the private mortgage loans.
To probe reasons for the increased interest in private mortgage loans, it is pertinent to point out the swift rate of approval provided to lenders seeking private mortgage loan. While a conventional loan may take about two to three months to be approved, a private mortgage loan can be accessed within a couple of days.
Truth be told, conventional loans take up a considerable amount of time, as they need to obtain an appraisal of the property’s value, look up the borrower’s financial history, carefully examine the borrower’s current financial status, as opposed to the private mortgage system, where the property itself is the main benchmark for awarding loans.
In addition, decisions can be reached within 24 hours of receiving information in a private mortgage system, as opposed to months of deliberation by conventional mortgage companies that may meet just a couple of times in a month.
Simple application process is also another major factor why private mortgages fare better than the traditional ones. Decisions are reached and decided wholly on the value of the asset proposed for collateral. On the other hand, poor financial records, small credit scores, or debt accumulation may disqualify a borrower from been granted a loan. The conventional financial institutions are both critical of the worth of the collateral value and the lenders financial details.
However, Private mortgages are not concerned with the financial information of the lender, they are majorly concerned about the worth of the collateral asset, and as long as it reflects and commands a good market value.