5 Surprising Facts about Private Mortgage Lenders

| December 15, 2016 | 0 Comments

Private mortgage lenders are a common alternative to a standard mortgage lender, such as a bank or other financial organization. In the past 2 decades, the popularity of private mortgage lenders has increased significantly, primarily due to financial factors as well as new and stricter regulations in the lending industry. The following are 5 surprising and interesting facts about private mortgage lenders that will help give you more inside into the private lending industry.

The terms of private mortgages usually differ from a typical mortgage

A standard mortgage from a bank or financial institution has different characteristics than a private mortgage (See more at OE Mortgage). Private mortgages are comparatively easier to qualify for, since private lenders are usually looking at the project—or what you’re seeking a loan for—rather than your credit score or personal financials. Private mortgage lenders often require shorter payback periods; for instance, while a traditional mortgage might be paid off over a period of 30 years, a private lender may require the payback to be completed anywhere from 6 months to 12 months and occasionally up to 2 or 3 years. Private lenders also charge higher interest rates when compared to traditional lenders, often due to the increased risk of private loans.

They’re becoming more commonplace than in previous years

Since 2006, the amount of credit loaned by traditional mortgage lenders has steadily decreased; for example, in 2006 commercial banks made up about 60% of mortgage lenders, whereas they now make up about 50%. Private mortgage lenders, on the other hand, have increased, filling the left behind by banks and other financial institutions. In 2006, only about 20% of mortgages were given by private mortgage lenders; this number has increased to about 40%.

Lenders can be people or organizations

A private mortgage lender can be an individual person or an organization that doesn’t fall under the umbrella of traditional mortgage lenders like banks, credit unions, and other larger financial institutions. Private mortgage lenders still have to comply with the rules and regulations regarding mortgage lending, no matter if they are a single person or an organization with dozens of members.

Some lenders use mortgage lending as an investment

Private mortgage lending is sometimes used as an investment for the lender, which is one of the reasons why private lending often has higher interest rates; private lenders are taking a considerable risk, and often have higher rates in order to balance out the potential risk with a better reward for their work.

They are a popular option for people who can’t obtain standard mortgages

Private mortgage lenders are often sought out by people who aren’t able to obtain mortgages from traditional sources due to concerns such as a low credit score, lack of financial history, or risky project which traditional mortgage lenders may not approve. If you are looking to take out a mortgage loan, then private mortgage lenders can be an excellent option if you know the risks, know their benefits, and are prepared to deal with a shorter payback period and higher interest rates than a traditional mortgage.

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