If you do not qualify for a mortgage with a conventional lender, worry not. You are not the only one. There are many reasons banks to reject mortgage requests. Whether it’s employment issues, bad credit, property risks, or other factors, a private mortgage can be your solution.
A 12-month term is common with private mortgage lenders for bad credit. Most terms are 6 months to 3 years for first time mortgages. But this depends on the lender you are dealing with. If you cannot handle such a short repayment period, a longer time may be appropriate for you. Certain private mortgage lenders offer mortgage on long term basis using their own money.
Contrary to banking institutions, private residential mortgage lenders give loans based on:
- The value of the property to be used as collateral
- Location of the property
- The remaining equity of the real estate
Criteria
There are certain factors private mortgage lenders consider important before giving out loans. To qualify for a mortgage, you must fulfill the following criteria:
Type of real estate and its value
This is the first thing your lender will look for when considering to give you mortgage or not. Your property must be approved first. Whether it’s a condo, multi-family unit, or rental, the type of house plays a significant role in reducing the lender’s risk. Its current value and condition are indispensable particularly if your creditworthiness is poor. The private mortgage lender wants to have an assurance that they can recoup their investment if you default.
To pass this criterion, make sure your property is in a habitable condition. Get a third-party appraisal though some mortgage lenders will do the inspection themselves. If your Loan to Value (LTV) is very low, you don’t need to spend extra money on appraisal. The lender will make a quick evaluation to save you on appraisal cost.
LTV and down payment for new houses
Normally, private mortgage lenders for self-employed do not give loans to borrowers whose LTV exceeds 85%. This tells you that you need to put 15% of the loan down to cover for the high risk. Actually, a lot of these people work around 75% LTV and below. Not unless you have built a strong relationship with a lender, it is very unlikely to acquire mortgage for a property with 90% LTV or above.
If you are in a position to make a big down payment, then you will be saving on interest payments. By making such a huge investment, the lender will be more confident knowing that you have more skin in the game. They can even reduce the interest rate for you.
The higher the borrower’s risk, the higher the interest and fees become. So, if you can afford a down payment, don’t hesitate to use it on private mortgage loans for for your home.
The remaining equity to refinance second mortgage
Are you considering adding a second or third mortgage with a private lender? When refinancing, your mortgage provider may accept a higher LTV, say 85%. But most providers will only refinance mortgages up to 80% LTV.
For instance, you want to refinance $650,000 for a property worth $850,000. Then, your LTV is 76%.
Income
How well will you be committed to making monthly payments? If you don’t have formal employment, there’s no need to worry. A hard money lender accepts less conventional incomes from business owners, self-employed, and commission-based workers.
Traditional income comes from regular salary and hourly wages. These can be proven with T4’s, Notice of Assessment (NOA), or pay-stubs. Since informal employment is accounted for differently, it’s a bit tricky to prove that you can manage monthly installments. Your loan provider will therefore accept only particular estimates after assessing some information that most banks don’t consider.
How to start with private mortgage lenders
It takes a lot of time to build a good credit history, grow your net worth, and save a significant down payment to acquire a conventional home loan. But you can skip these time-consuming steps if you consult a private mortgage lender. Do you have a property you are looking to purchase, or even better, already in contract and you need financing? Many of our hard money lenders are looking to help you with deals like this. To find out which lenders are the best fit for you and to receive mortgage offers quickly fill out a request.
