Even if you aren’t a first time home buyer, the ins and outs of getting a mortgage can be overwhelming. With a traditional loan you have to apply, jumping through all of the bank’s hoops, making sure you’re qualified, and then wait the long months until you get the news, wondering what you’re going to do if your loan is denied.
But, many people have found that alternative options like using a private money lender, or a hard money loan, fits their needs better than a conventional bank loan. This post will cover the basic differences between a privately funded mortgage and a conventional mortgage, and the main benefits of a private loan, so you can see if it’s a right fit for you.
What is a Privately Funded Mortgage?
A privately funded mortgage is a mortgage that is financed using a loan from a private source, such as family, friends, a business partner, or a business entity that you have made an agreement with. This is different than a traditional, conventional, or FHA government funded loan, which typically requires down payments, loan insurance, and good credit scores to qualify for. For those that struggle with getting qualified for a loan, a privately funded loan could be the answer.
Just like a traditional loan, a private loan can be used in many different ways, from private capital, to trust deed mortgages, refinancing loans, apartment loans, business proposals, bridge loans, personal purchases, and “fix and flip” loans for house improvement and construction.
A Hard Money Loan and its Advantages For Your Mortgage
A common type of private loan for a mortgage is a hard money loan. The phrase “Hard Money” was used in the 1950s to mean a type of loan based on the physical property, rather than credit. Today, a hard money loan, or a commercial hard money loan, means a type of loan that is specifically asset-based type of financing where the borrower receives the borrowed funds from property. It is usually issued by private money lenders or a business. Because a hard money loan isn’t credit-based, it allows the lenders to fund loans quickly (much faster than a traditional loan).
In addition to being fast (typically within a few weeks, rather than a few months) a hard money loan, or any private loan, doesn’t require a perfect credit score or income history. Because a hard money loan focuses on the value of the property (which generally serves as collateral and down payment), they don’t care as much about the borrower’s income and credit scores. This means that it is much easier to get approved for a loan (though most lenders will still have a set of criteria that you must meet).
A private loan also comes with the benefits of having less rigid rules and regulations. Having a working relationship with a lender can mean the borrower and lender are much more likely to work through issues that may arise from the terms of the loan, and come to a solution that satisfies them both.
Choose the Option That is Right for You
In the end, only you can decide whether a privately funded mortgage loan is the correct option for your financial situation. But the point is that you have options, and if you are unable or unwilling to get a traditionally funded loan, then there are loan programs and private lenders who are ready to help you with your mortgage.