Mortgage is a loan used either to buy a property or maintain one. Banks and other traditional mortgage companies lend money to people on the basis of certain requirements like good credit scores and a validated source of income. The amount of money lent is charged interest, with a considerable amount of paperwork, and is usually long-term; the complete repayment of loan might take more than a decade. Upon not being able to pay the interest and the loan, the lender has the authority to seize the property. A safer option might be to take a federally insured HECM loan reverse mortgage, or a private mortgage.
In case of mortgage loans, the real estate being bought is used as the collateral.
Besides conventional money lending bodies, there are private money mortgage lenders in Seattle WA, whose checking of your ability to repay loan is lenient. These lenders provide money quickly to the borrower, comparatively less paperwork is required and are usually short-term loans. Pertaining to the length of time, the private lenders charge high interest on their lent capital; a way to make money out of the deal.
In some cases of private money mortgage lending, lenders also expect profit shares in the property, which is a good incentive given by borrowing investors to the lenders.
Who looks for private money mortgage lenders?
Despite the high interest rates, people refer to private money lenders for buying a house due to the following reasons:
- Speedy approval of application:
While banks and other mainstream mortgage companies take eternity to approve an application, and that too, if you qualify for a mortgage loan. While, private money lending companies take a lot less time, usually of a few days.
- Easy Requirements:
Unlike traditional mortgage money lending institutions, Local Hard Money lenders set their own requirements to qualify for a mortgage loan, which are a lot easier.
- Quick transfer of money:
The money transfer takes a day or 2 in private lending, making it suitable for people who are in need of cash money to invest in a house and can’t afford any delay.
- Short-Term Loans:
These loans are for a shorter period of time, ranging from 1 to 3 years, as compared to bank loans that might take more than 20 to 30 years to be paid back.
- Inclusiveness of Private Loans:
Banks are excluding a vast majority of people by following their strict guidelines for mortgage loan qualification, on the contrary, private lenders look out for those who can actually pay back but are denied a loan by traditional money lending companies based on their conventional prerequisites. Also, private lenders focus on the real estate’s value and the borrower’s ability to repay.
- Mutually Beneficial:
Is mutually beneficial to both parties, the borrower has the money he needs for buying a house, and the lender is making good money by charging high interest on his lent capital, that would otherwise be difficult for him. Moreover, the lender has the authority to seize the property if the borrower defaults through a foreclosure.
- Lower Fees:
While traditional lenders charge high fees, there are lower fees expenses in private mortgage. Also, the borrower does not have to pay private mortgage insurance- the PMI.
WHAT TO DO BEFORE GETTING INTO A PRIVATE MORTGAGE:
Private lending involves a lot of risks, to decrease chances of any mishaps these are some of the safety measures needed to be taken by borrowers and lenders before entering into a private mortgage.
- Documentation:
Any private mortgage lending should be well-documented. It is imperative that the terms and conditions are written clearly and no ambiguity is left in the deal.
- Law Compliant:
No matter you are a borrower or a lender, always consult an attorney to make the deal according to the laws and regulations relating to private mortgage loans to reduce any room for illegitimacy, and prevent any future complexities.
- Talk Everything:
Both parties should discuss about minor details of the mortgage, so there is nothing concealed, like- When and how will the repayment be? What will be the collateral? How much interest will be charged? What will be the penalty if borrower is not able to pay on the decided time? What action a lender can take if he is not paid back on time?
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