When people want to buy a property, their first option is usually to apply for a traditional loan from a bank or credit union. But there is a big problem with this, and that is that your income may be insufficient or your credit score may be too low. If you are struggling with the same problem, you should consider a private mortgage from private mortgage lenders for bad credit. In this article, you will know what a private mortgage is and also what are its advantages and disadvantages,
Private Mortgage Lenders For Bad Credit – What Is A Private Loan?
As the name suggests, these are private loans in which no bank or approved issuer is involved. Rather, it is direct financing from an individual. The investor can be a private company, a family member or a friend.
A private mortgage is a good option for those home buyers who cannot qualify for a traditional mortgage. Moreover, some borrowers also use this loan to make their home profitable or to start their rental business. Read the following pros and cons to find out if this is a good option for you or not.
Benefits of private mortgage lenders for bad credit
You may want to consider a private mortgage to finance your property purchase for the following reasons:
- Faster financing
You need to get approved to get a loan from a bank. And it is also a long process. On the other hand, private mortgage lenders for bad credit provide funding in a matter of days, as there is much less documentation involved.
- Easy to qualify
This is the biggest advantage of a private mortgage loan that it is so easy to qualify for it. Some people may even think that it is not necessary to be qualified for this at all. But it’s wrong. Because you still have to provide your credit history. Additionally, you must also provide proof of income to determine things like payback period and interest rate.
- More flexibility
There are not as many rules and regulations in a private mortgage as in banks for typical loans. Thus, the lender and the borrower have the greatest flexibility in setting the conditions themselves.
Disadvantages of Private Mortgage Lenders for Bad Credit
While there are benefits to a private mortgage, you should consider the following risks before entering into a financial deal.
- Higher interest rates
One downside is that private mortgages have higher interest rates than traditional bank loans. In some cases, they can reach 20%. As a private mortgage is meant for bad credit holders, lenders charge higher interest rates to secure their riskier investment. So, they don’t turn away bad credit holders, instead, they charge high interest rates.
- Short payback times
Since the payback period is usually very short, a private mortgage is not a good option for a long-term real estate investment. You will have to repay it in 6 months, while you can repay a traditional loan in 30 years.
The last words
Thus, the option of lending a private mortgage from private mortgage lenders for bad credit can benefit those with poor credit.