The mortgage lending landscape has changed during the past few years. Lenders and insurers have become more discerning when approving mortgage applications. It's even more challenging to those with some damaged credit and for those who are self-employed. The good news for self-employed individuals is that one insurer is now re-releasing its stated income product. For other clients who have had some credit issues due to any number for reasons including job loss or illness, a whole new group of lenders have entered the market. They are private lenders, but not in the traditional sense.
Most home buyers, including investors, consider private lenders their last resort. However, the new lending environment has opened the market for a variety of private lenders and not all will expect big fees and high interest rates.
You may be familiar with private lenders as individuals who have some extra money to lend at a relatively high interest rate and substantial fees. They are still around; however, the emerging private lenders are groups of lenders - big groups like Mortgage Investment Corporations (MICs) and Real Estate Investment Trusts. (REITs). These lenders offer considerably more flexibility for borrowers and offer products to those who may have some credit challenges or their income has been inconsistent. For those who would prefer to get a mortgage with minimal proof of income or assets, there are options available from private lenders. New home builders are becoming more interested in private financing because of the flexibility.
In traditional lending, the current big banks' five-year fixed posted rate is 4.74%. The average discounted rate for mortgage brokers is approx. 2.65%. Variable rates for mortgage brokers are as low as prime minus .65% or 2.2%
The new private lending market is divided into three camps - prime, sub-prime and sub-sub-prime. The prime private lenders will offer interest rates that equal the bank's posted rates or a point or two higher. Sub-primes rates will be from 7% to 10%, and sub-sub-prime lenders will offer rates of 10% and higher. Some will not charge fees, but most will. Fees vary and usually start at .5% and go up from there.
The upside is private lending rules and guidelines are more lenient than banks or monoline lenders since they are determining those rules for themselves. Many will consider the equity position only, while others will look at income and the overall picture. Most will ask for a credit report, but don't give it too much weight.
What won't change are the terms. Private mortgage are generally short-term loans - from one to two years and can be interest-only. Payments are monthly.
Here are some scenarios where private lending can help:
If conforming lenders won't approve a loan due to bad credit
If you need only a short term mortgage loan
If you are self-employed and have non-confirmable income and don't qualify for the stated income product
The purchase has to close quickly
Property values are very high
Private lenders also tend to specialize, for example, within a property type or investment. Some prefer urban areas or lending in familiar regions.
Call me today to find a lender who will meet your individual need.