How Does a Private Mortgage Compare to a Traditional Mortgage?

Private mortgage options have become increasingly more popular thanks to stringent stress test mortgage qualification rules required by traditional lenders such as banks, increased inflation and higher interest rates. It’s just one more option your mortgage agent can offer to help you buy a new home or refinance/renew an existing mortgage when you don’t fit into the typical lending box.

While private mortgage lenders have been around for many years, they were often relied upon as a last report by borrowers who had credit issues and needed options to turn their situations around. And, while this is still a solution for those with bruised credit, if you’re self-employed or building a new home, for instance, you’ll also benefit from understanding your private mortgage options.

Flexible solution

Private mortgage lenders provide more flexibility in their approval process compared to traditional lenders. They’re more willing to consider unique financial situations, such as self-employment income, lower credit scores or unconventional properties.

Working with your mortgage agent to access private funding also helps ensure you receive fair terms and pricing that you can afford through reputable lenders. You’ll also be presented with an exit strategy to help get you back into traditional lending products and rates as soon as possible.

Sometimes all you need is a temporary fix to help you out of a tight situation over the short term while, at other times, it may take longer to move back over to traditional lending. The great thing about private terms is that they’re shorter – typically a year or two – and include flexible payment terms, meaning you can often pay them off at any time without penalty.

And while traditional mortgage financing looks at your credit score to determine qualification, private financing is equity based. In other words, private lenders want to know that they’ll be able to easily sell your property should the mortgage go into foreclosure.

Opportunity comes at a cost

You can expect to pay higher interest rates as well as lender/broker fees due to the complexity of private deals but, at the same time, you’ll benefit from the opportunity to clean up your credit, establish yourself as a self-employed business owner or otherwise improve your chances of qualifying for a traditional mortgage. Your mortgage agent will provide a roadmap to help ensure you work towards improving your situation while in the private mortgage.

Private lending is a great option to have available when you need it most to keep you in your home or help you purchase your first home now as opposed to continuing to rent and pay down someone else’s mortgage.

Regardless of the reason you’re unable to qualify for a mortgage with traditional lenders, the private alternative can be a lifesaver. The key is to ensure you don’t become debt ridden again or fall into the same circumstances that left you with few options in the first place.

Wondering if a private mortgage may be right for you? Answers are just a call or email away!