Buying your first home can be one of the biggest and most important milestones in your life. It is both an economic investment and a big personal achievement. Given the financial scale of the event, it is important to determine the right place to borrow the funds.
If you are thinking of applying for a mortgage from a traditional bank or credit union, you will have to meet their stringent qualification requirements and complete all the documentation. Mortgage applications with traditional lenders are both complex and time-consuming. That is why many new homebuyers are drawn to private mortgage lenders.
Why Choose Private Mortgage Lenders?
There are many reasons for choosing a private mortgage lender to fund your home purchase. Here are the most noticeable ways they can make it easier to buy your home:
Simpler Qualification Process
Private mortgages tend to have an easier qualification process. Lenders offering these loans are mostly focused on the value of the property. While they do evaluate borrower income and credit score, a lot of emphasis is laid on the house’s value.
It is common for private lenders to approve clients who were not approved by banks because of credit challenges and unconventional sources of income. You will certainly be required to provide details of your income and credit history to calculate the repayment period and applicable interest rate. However, even when you have a low credit score, you are highly likely to qualify if the lender sees a profit from your mortgage.
Faster Processing
Having your loan processed by a bank can take a long time. And that is the case after you have been approved. With private mortgage lending, you have less documentation and steps to go through. You can expect these funds to be released in days, not weeks.
Private lenders mostly have streamlined application processes compared to the long and complex processes with banks and traditional lenders. While this can make the process hassle-free for you, it can also mean getting access to the funds much faster.
Higher Loan Value
Another reason for choosing a private mortgage is its higher loan-to-value ratio. Despite the stringent conditions laid down by traditional lenders, this ratio is generally lower. In other words, you can expect not only a faster loan process but a larger mortgage amount. This means you can apply for a mortgage even with a smaller down payment.
Flexible Terms
More flexible terms further simplify and speed up the process. Private mortgages are not limited by the same, rigid rules that traditional mortgage terms have. You are better positioned to set terms that benefit both you and the lender.
Absence of Stress Test Requirement
Conventional lenders are required to adhere to federal regulations. One such requirement is the mortgage stress test. The absence of this test for private mortgages means it is easier for you to qualify for a higher loan amount.
How are Private Mortgage Lenders Different from Banks?
Both private lenders and banks offer their unique set of advantages for borrowers. The key features of both types of lenders are as follows:
Private Lenders
Private mortgage lenders are independent entities that generate their profits from interest on loans they offer. If you are seeking easier access to a mortgage loan for your first home, private lenders make the perfect sense because they have greater autonomy in terms of creating their lending criteria. As mentioned above, they have a less rigid regulatory framework compared to credit unions and banks.
Banks
Banks require their home mortgage buyers to align with their standard lending regulations related to:
- Reliable sources of income
- Favorable debt-to-income ratios
- Creditworthiness
Banks work under stringent oversight from both federal and state government regulatory agencies.
Thus, there are many points that work in favor of private mortgage lending if you are planning to buy a house. The qualification requirements and application process are simpler and faster. Besides, you will not have to meet complicated documentation requirements.
