Real estate private loan programs provide an alternative to traditional mortgage lenders such as banks. These programs specialize in providing short-term loans that allow people to buy and renovate homes, which is why they're commonly used by flippers, who are planning on selling the home that they buy very quickly.
However, people who are having trouble being approved by traditional lenders can benefit from these programs as well. You always have the option of refinancing out of the private loan using a traditional lender, and it's often easier to be approved for refinancing than it is to be approved for the initial mortgage. If you're a home buyer who is unfamiliar with private loans, read on to learn when using one to purchase a home may be the best choice.
You Need to Get Approved and Close on the Home Quickly
One of the biggest advantages that real estate private loan programs have over banks is that they can approve you for a home purchase much more quickly. Banks perform extensive vetting on anyone who applies for a mortgage, and your application paperwork needs to be reviewed by multiple people across different departments. In some cases, it may take months before you're approved for a mortgage.
If you're in a real estate market where homes sell quickly, this waiting time can cause you to lose out on a deal. When you need fast approval because you're in competition with multiple other buyers for a home, you'll be more likely to receive it by seeking out a real estate private loan program rather than going through a traditional bank.
Banks tend to be very conservative with their approvals, and they generally don't like approving people who are self-employed due to the fact that self-employed income is more likely to fluctuate. For people who are self-employed, it can be very difficult to secure approval for a mortgage from a traditional bank.
Thankfully, real estate private loan programs are able to help you when you're self-employed. These loans are short-term, so they're less concerned about potential income fluctuation over the coming years. In addition, these programs also are often willing to take risks that a bank would not. If you're self-employed and having trouble finding a mortgage with a traditional bank, then a real estate private loan program may be able to give you the financing that you need.
You're Buying a Home That Needs Extensive Renovations
Banks are also typically unwilling to back mortgages for homes that require extensive renovations. These homes are often sold "as-is," which presents a serious financial risk to the bank. Banks use the home as security for the mortgage. If the home is in dire condition and requires a substantial amount of renovation and repair before it's livable, then they may be unable to sell it if you default on the mortgage. Banks are also not in the business of estimating renovation costs or performing renovations, so they try to avoid the possibility of taking ownership of a home that requires them.
Real estate private loan programs, on the other hand, are often used by home flippers that are specifically purchasing homes that require renovations. It's part of their business model, so they have experience estimating the cost of renovations and factoring it into the value of the home. If you're purchasing a home that needs a significant amount of work, you'll have better luck trying to finance it through a real estate private loan program rather than going through a bank.
In general, real estate private loan programs are a good option if you're having difficulty securing a mortgage through a traditional lender. They're typically more willing to take risks. However, you'll pay for the extra risk in the form of a higher interest rate on your loan. If you're struggling to finance a home through traditional methods, however, a real estate private loan program can allow you to secure the funds necessary to purchase your new home. If you're not having much luck with banks, research private lenders in your area and ask about getting approved for a loan to buy a home.
Contact a loan provider like Precision Capital - Your Private Money Source to learn more.