Private Lending

For individuals who find themselves ineligible for a conventional mortgage through traditional financial institutions like banks and credit unions, the option of private mortgages may be a viable alternative. It’s crucial to understand that private mortgages are intended as a temporary fix. While obtaining a private mortgage may be more accessible, it often comes with elevated interest rates, fees, and additional terms or limitations.

Private mortgage lenders typically offer short-term loans with higher interest rates and fees compared to mainstream banks. However, they also tend to be more adaptable in their lending criteria, capable of tailoring solutions to suit the unique needs of borrowers.

Key Considerations for Borrowers:

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  • Direct Loan Costs: This encompasses factors such as interest rates, loan term, and the amortization period (the duration required to fully repay the loan).
  • Loan-Related and Initial Set-Up Costs: This includes expenses like lender fees, brokerage fees, and legal fees associated with the loan’s initiation.
  • Closing and Administrative Costs: Appraisal fees, renewal fees, and collection/management costs in case of deviating from the proposed payment plan are essential to account for.

The Private Lending Process:

  • Initial Assessment: Lenders typically request details about your current situation, property, the equity you possess, and the repayment plan. An experienced mortgage broker evaluates your situation and determines which lenders might be interested.
  • Property Appraisal: Most private lending transactions require an early appraisal of the property, as it serves as the lender’s collateral.
  • Terms Proposal: Based on the property appraisal and your financial status, the lender provides terms, including interest rates and set-up fees.
  • Application and Review: If a private mortgage appears feasible, the next steps involve submitting a mortgage application and undergoing a credit report review. Required documents usually include employment letters, tax papers, proof of equity, and the purchase offer.
  • Loan Package Compilation: The application and supporting documentation are compiled into a package outlining the loan project and risk mitigation for the lender. The lender reviews the loan request, discusses it with their internal credit group, and issues a Commitment to Lender Letter if interested in the terms.
  • Conditional Approval: The Commitment to Lender letter outlines conditions for approval, including the most recent property appraisal. These conditions must be satisfied before funding the loan.
  • Finalization: The borrower meets with the lawyer, and the mortgage funds are disbursed according to the agreed-upon terms.

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