Is a Privately Funded Mortgage Right for You?

If you’re a real estate investor, you probably rely on loans to fund your purchase, so you can realize a return on your investment sooner rather than later. However, one major shortfall of traditional mortgages is the way they can get mired in a lot of red tape and paperwork. This is why fix-and-flippers and other investors often turn to privately funded mortgages. Let’s look at different scenarios where a privately funded mortgage might be right for you.

You Don’t Qualify for a Traditional Mortgage

As the name suggests, a privately funded mortgage is an arrangement between a borrower and a private individual or entity. As a borrower, you get the funds you need to purchase property, and you then repay the loan via monthly repayments with interest added. You also have to offer trust deeds to the property as security.

This is meant to reduce the lender’s risk since they have something to hold onto should you default. However, as long as you stick to the agreement, you can realize your profits. Typically, trust deeds have an ROI of between 6% and 35%, with an average return of 10%.

The best thing about privately funded mortgages is you can still make investments even if you don’t qualify for a traditional loan. Banks tend to have stricter underwriting criteria, so if you have bad credit, for instance, a privately funded mortgage is a welcome alternative.

You Want Capital Quickly

Applying for a mortgage at the bank means you will have to wait longer to get the capital you need. The application process involves a lot of paperwork, and at the end of the day, you might end up missing a good deal because you weren’t able to close on time.

One major benefit of taking out a private mortgage is the quick application process that requires far less paperwork. This can greatly enhance your investor experience because you can get the capital you need in days instead of weeks.

You Can Make an Equity Contribution

In most instances, you’ll need to make a down payment when taking out a privately funded mortgage. This lessens the lender’s financial risks and increases your chances of getting approved for the loan. You may have to make a down payment of up to 35%.

Overall, a privately funded mortgage is best for borrowers who might not qualify for a traditional mortgage. However, it’s not only bad credit borrowers that can benefit from such a deal. Real estate investors often opt for this arrangement because they can get capital quickly with much less hassle.

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