When people want to buy a property, their first option is typically applying for a traditional loan from a bank or credit union. But there’s one big problem with that, which is your income may be insufficient or your credit score may be too low. If you’re struggling with the same problem, you should consider a private mortgage from private mortgage lenders for bad credit. In this article, you’ll know what a private mortgage is and also, what its pros and cons are,
Private Mortgage Lenders for Bad Credit – What is private lending?
As the name suggests, it’s private lending in which there are no banks or licensed issuers involved. Rather, it’s direct funding from an individual. The investor could be a private business, a family member, or a friend.
A private mortgage is a good option for such homebuyers who can’t qualify for a traditional mortgage loan. Moreover, some borrowers also use this loan to flip homes for a profit or to start their rental businesses. Read the following pros and cons to find out whether it’s a good option for you or not.
Pros of private mortgage lenders for bad credit
You can consider a private mortgage to fund your property purchase for the following reasons:
- Faster Funding
You’ve to get yourself approved for taking out a loan from a bank. And, it’s a long process as well. On the other hand, private mortgage lenders for bad credit provide funding in days, as there’s far less documentation involved in it.
- Easy to Qualify
It’s the greatest advantage of a private mortgage that it’s so easy to qualify for it. Some people may even think that getting qualified for it isn’t required at all. But that’s wrong. Because you still need to provide your credit history. Moreover, you also need to provide proof of income to determine things such as the payback period and the interest rate.
- Greater Flexibility
There aren’t as such rules and regulations in a private mortgage as there are in banks for typical loans. So, both the lender and the borrower have the greater flexibility to set terms for themselves.
Cons of private mortgage lenders for bad credit
Even if there are advantages of a private mortgage, you need to consider the following risks before making any financial agreement.
- Higher interest rates
One drawback is that private mortgage loans have higher interest rates, as compared to traditional bank loans. In some cases, they can be as high as 20%. As a private mortgage is for bad credit holders, the lenders charge higher interest rates to secure their riskier investment. So, they don’t turn down the bad credit holders, instead, they charge high-interest rates.
- Short payback periods
As the payback period is typically very short, the private mortgage isn’t a good option for long-term property investment. You’d have to pay it back in 6 months, whereas, you can pay a traditional loan in 30 years.
The Final Words
So, the option of lending a private mortgage from private mortgage lenders for bad credit can benefit those who have low credit.