There is nothing distressing like when you need to buy a home but lack the creditworthiness to qualify for a conventional loan. The situation becomes even more stressing when you begin to see the chances of missing on the property. However, if you don’t mind paying an extra dime in interest for the investment, turning to a private mortgage could be a viable solution to your need.
Private mortgages or hard money is a loan you get from private mortgage lenders. The lender can be your friend, a private investor you’ve never met, or a private company that is in the business of helping homebuyers get funds against a collateral.
There are many reasons why people turn to private mortgages as their source of financing but below are the 3 key benefits that come with it:
Easy to Qualify and Can Raise Your Credit Score
Private loans are designed to help homebuyers who don’t meet the stringent requirements set by ordinary lending institutions to have a loan application approved. That means, people who are self-employed, those with imperfect credit, and those not able to prove a consistent income history can easily qualify for this loan. Another plus with private mortgages is that it can help borrowers clear away other small debts faster, to boost their credit score. Top on that, being able to repay the private loan within the short time agreed would rewrite your financial history for the better.
Short Approval Process
If your house is eligible for private funding, you’ll just need to wait a couple of weeks before your request is cleared for funding, contrary to conventional mortgages, where loan applications take 3o to 45 days to go through.
Taking a second mortgage might also help refinance your project, but still, it can’t beat the private mortgage approval’s time. Some borrowers don’t mind the high interests attached to these hard loans as much as they get the money faster to sort out their issue.
Great for House Flipping
If you intend to flip your house or improve its worth to secure a better-priced deal when reselling it, a private loan is a good source of funding to have that job done quickly.
Hard loans are also a great source of financing for fix-and-flippers, or people who purposely buy property, renovate to increase its value and resell it within a year, for profit. Either way, you need to keep in mind the short repayment period attached to these loans, which means if you plan to clear the debt after the sale, the property needs to get a buyer before the agreed time of repayment.
Buy and hold investors who want to refinance an existing mortgage — mostly with the goal of seasoning the property, also benefit a lot from private mortgages because they are always guaranteed to get the funds as soon as they need to invest.