What is a Private Mortgage?
June 25th, 2009, Written By: Kerri Randall
If you want to apply for a home loan but you know your credit score is quite low, you have the option to obtain a private mortgage, where you may have better luck being approved. In other words, you’ll circumvent the bank and take a loan from somewhere else.
Homeowners can offer private mortgages when they’re trying to sell their homes but might be having a difficult time doing so. An arrangement like this can benefit both the seller and the buyer. The buyer that wouldn’t qualify for a bank loan can get the house they really want, and the seller is able to actually sell the house.
The title is not transferred to the buyer here until the loan is paid off, but you as the buyer can use this time to build equity while improving your credit history. This is good for the seller, too, because if you default on the loan, the seller regains full possession of the house and can sell it again, all while keeping the money that the buyer has paid so far. Not necessarily a great deal for you, but it provides a little insurance for the seller.
The downside to choosing a private mortgage from the home seller or another third party lender is the interest. Rates can be outrageously high. The home seller is interested in protecting their investment, and third party lenders tend to use private mortgages as ways to make money—they want a profit from the loan they’ve given you. If your credit score is low, they might raise the interest rate even higher still.
If a private mortgage seems to be your only real option for buying a home, consider all the pros and cons. If you decide to go forward, make sure you find a lender that is credible and trustworthy. Otherwise, you can always work on improving your credit score so that you can eventually qualify for a conventional loan with good rates.
Categories: Mortgage Loans
