What Is A Private Mortgage, And How It Works

When you shop to buy a new home, you come across various traditional and private mortgage lenders in Philadelphia. Additionally, they will provide you with information about their policies and terms, which will aid you in selecting a reputable private mortgage lender in Philadelphia from which to borrow money. Getting a loan from private lenders is riskier than getting one from traditional mortgage lenders. It is vital to understand private mortgages, how they differ from a traditional mortgage lender, how they will benefit you, and how they work.

What Is A Private Mortgage?

A private mortgage is an arrangement between a borrower and a private lender. Private lenders create their own guidelines and terms to give you a private loan. They give these loans to people who need money and charge an interest rate that needs to be paid as a monthly mortgage payment. So, a private lender may not need Private Mortgage Insurance (PMI) to secure your payments to them (As long as you pay 20% of the downpayment). Some borrowers consider this option as there is more paperwork with traditional lenders, or they do not have enough credit scores to qualify with traditional mortgage lenders.

How Does A Private Mortgage Work?

This type of loan is riskier than government-backed loans, so it is better to look at how a private mortgage process works.

Search For Private Mortgage Lenders

The first step is to look for mortgage lenders in Philadelphia who can offer private mortgages to help you in your time of need. It is better to ask your family member, friends, and relatives for a loan as fewer conditions will exist. Moreover, the loan balance and down payment can be made with less interest. You can also contact real estate agents and check online for lenders who can give you a loan. So, if you have a good credit history, a decent income source, and a low debt-to-income ratio, you can pay a low down payment to the lenders.

Take Out The Terms Of Your Agreement

Since you are going to a private lender than a traditional lender, you can negotiate the agreement terms with a bit more flexible loan terms. You can ask for lender-paid mortgage insurance if you can pay higher monthly payments. Although, if you have enough funds for borrower-paid mortgage insurance, it is better to go with it as, in the long term, it will reduce the pressure of other expenses. As you enter the mortgage agreement, read all the terms and negotiate with the lender to avoid surprises.

Have A Consultation With A Real Estate Attorney

It is always good to have a real estate attorney consultation and show him the terms of the agreement. It is preferable that you take guidance for drafting the agreement, which gives you legal guidance on real estate jargon and checks for any red flags. Moreover, they can lend a hand to help you complete the whole loan process smoothly.

Finalize Your Loan Paperwork

So, when you finalize the agreement, it will not suffice with a simple handshake. You must check that the following documents are in place to streamline the process.

Promissory Note

It is a legal document stating the terms of the agreement and paying back the loan by maturity. This may include the loan balance, monthly mortgage payment schedule, and penalties if you fail to pay the loan by the set time period.

Deed Of Trust

The document states that the lender will hold the loan title until the amount is paid back with interest to the lender. Moreover, a private mortgage lender can foreclose your home if you fail to pay.

What Are The Alternatives To Private Mortgages?

If you do not have 3% to 5% of the money for the down payment, it is better to take some time and try to save it. If you do not have enough income, you must increase your income sources to have the money to pay off the monthly payments.

There is an alternative for you - Federal Housing Administration (FHA) loan. However, you will need to pay for FHA mortgage insurance for the time period of the loan, along with monthly payments as required.

Bottom Line: Is It Reasonable To Go For A Private Mortgage

A private mortgage is your lifeline if you need emergency funds. You can get your funds from a private lender with fewer obligations. However, you may need to give a lot of consideration to the terms of the mortgage agreement. You can also look for mortgage brokers in Philadelphia who can provide you with FHA loans, as they are one of the best alternatives to private mortgages if you cannot consider going to traditional banking institutions.