What is a Private Mortgage Lender?

Private mortgage lenders are individuals who make mortgage loans to borrowers without going through any type of traditional lending institution or bank. In some cases, the private mortgage lender may be a person who is selling their home and the process is referred to as owner or seller financing. Generally, however; this is not the case. In most situations, a person making a private mortgage loan is unconnected to the property in question.

For individuals with credit that may not be perfect, a private mortgage lender can be an excellent solution to their home purchase problems. Many times it can be difficult for an individual who has experienced credit problems to become approved for a mortgage loan through a traditional lender or mortgage company. Even if the consumer has recently shown a history of being able to make payments on time, they are often considered to be too much of a credit risk for mortgage companies to agree to loan several thousands dollars.

In other instances, private mortgage lenders can be an excellent resource for persons engaged in the business of purchasing properties, rehabilitating them and then reselling them to families looking for safe, affordable housing at a higher price than was originally paid. Purchasing ‘fixer-upper’ properties, renovating them and then reselling them works out well for both the private lender as well as the real estate investor. In most cases, the person making the private mortgage loan is able to be assured that their investment is placed in much safer investment situation than stocks and bonds and usually they are able to receive a much larger return on their investment in far shorter time periods.

There are advantages and disadvantages to using a private mortgage loan. For the borrower; either someone looking to purchase a primary residential home or a real estate investor the benefits of a private mortgage loan can mean a tremendous time saving advantage. Banks and other traditional lending institutions may take days, or even weeks, to process a regular mortgage loan but because the application process for a private mortgage loan is much simpler, it can generally be handled in half the time or less. This time saving advantage comes at a cost, however. Private mortgage loans are typically made at an interest rate that is higher than the prime market interest rate. Because of this, the consumer will need to weigh the advantages and disadvantages of a private mortgage loan and decide whether it is the best option for them.