Not everyone can qualify for bankable mortgage loans. Private mortgages are a great alternative for while you are trying to establish or fix your credit, but are not meant to be a long-term solution. Private lenders tend to be less strict about your credit history, and have less requirements for an approval than a bank will. Since there is a higher risk of default in these situations, private lenders often charge higher fees (lender & broker fees, legal fees etc.), and a higher interest rate (typically anywhere from 10%+) and the terms are normally shorter at 1-3 years vs. the traditional 5 years.
Private mortgages are not always the most sought after option, but they definitely have a role within the market.
These are examples of when a private mortgage may be a good option:
- Borrowers with little to no credit or have low credit
- Emergency funding for those going through foreclosure, or those with property/income taxes in arrears
- Mobile homes or micro-condos ( < 600 sq ft) since banks will not finance/refinance these types of properties
- Second mortgage/investment properties
- Self-employed borrowers have a hard time qualifying for bank loans, especially when their income is unstable or unverifiable