Sometimes real estate investors who own many properties experience difficulties getting bank financing for a new property. Thankfully private mortgage lenders have been coming to their rescue providing viable financing options.
With an always-changing financial industry, many big changes have come into play due to a shift in economic climate. Subprime mortgage lenders have faded out, which has really limited borrowing options for investors. As if this wasn’t bad enough, it was followed by declining property values and rule changes for private lending. As a result, financial institutions are lending less, taking a more cautious approach to lending and turning away borrowers.
Private Financing & Private Lenders
Investors and mortgage investment corporations are the primary money sources for private lenders. This is part of the reason why private mortgage interest rates tend to be higher than a bank mortgage. However, even with higher rates it’s a perfect option for investors who can’t secure a traditional bank mortgage.
Even if you’re an investor with credit problems or you want to gain capital for other property investments, a private loan can assist in correcting them over the short-term or enable you gain the capital you need to renovate your existing properties, or invest more in new ones.
Reducing the Risk
The great thing about private lenders is that due to a new economic situation and implemented changes, they have the ability to reduce their risks with lower investor payouts. They’ve also decreased loan-to-value ratios since they’re in an equity-based market.
Over the last few years home values have also reduced, resulting in even private lenders carefully reviewing the financial history of borrowers. However, they remain to be more flexible than banks, especial when it comes to employment, an investor’s’ ability to pay, and their beacon scores.
How a Mortgage Broker Can Help?
As a property investor, you stand to reap the benefits when you hire a mortgage broker to secure your private financing. Private lenders most often require an investor to have a mortgage broker that has the capability to package your deal and carry out the much needed due diligence throughout the entire process.
Even though you can approach private lenders directly, it’s not really recommended. You will have to provide them with full disclosure, including the market value of the property you want to invest in, current market rental rates and your overall financial situation, strength and even weaknesses. This includes appraisals and credit reports, as well as a market analysis and comparison from a realtor and land titles too.
Tips on Working with Private Lenders
-
Be transparent. If you fail to disclose information or you’re not completely honest about your financial situation, this can probably be your biggest downfall.
-
Have an exit strategy. A mortgage broker can help you create an exit strategy so that you have other secure financing in place.
-
Find out what documentation and equity information you need. Your broker can help with this, what’s required would also depend on your lender as criteria generally vary.
-
Know if there are any fees. If you’re working on a private deal, know that you will need to pay a fee to your lender and your mortgage broker.
-
Patience is a virtue. Private loan can take time with all of the due diligence that needs to be carried out before your loan is approved, so be patient along the way.
Want to learn more about options for financial investments? Contact a mortgage broker today.
When we say Yes! We stand behind our promise.