Although the average credit score is 716, 15.5% of Americans have a FICO credit score below 600. For many people, getting a conventional mortgage can be a difficult task.
If you’re a Californian that doesn’t qualify for a traditional home mortgage, you may need to turn to other options. One of the ways that you can purchase a home without a conventional mortgage is to get a private mortgage loan.
In this guide, we’ll tell you more about private money mortgage loans in California.
What Is a Private Money Mortgage Loan?
A private money mortgage loan, also known as a hard money loan, is a loan that is offered by a non-traditional lender or an investor. This is as opposed to loans that are offered by conventional lenders such as banks and credit unions.
While private money loans vary depending on the lender, these loans typically have a lot of things in common. Because this is a type of mortgage, the loan will be secured by the property that a borrower is buying with the funds. The loan amount will be based on the property’s value.
With a private money loan, much less emphasis will be placed on a buyer’s credit score and history, like with conventional mortgages. This makes private money California loans a good option for borrowers who have bad credit or can’t get a loan through more conventional means.
Typically, the loan term for a private mortgage loan will be anywhere from 1 to 5 years. Very often, this type of loan will have a length of only 12 months. This means that it will be a much shorter-term loan when compared to conventional mortgages and other real estate financing options.
Why Get a Private Money Mortgage Loan?
A private mortgage money loan can be used for purchasing almost any type of property. However, every lender varies and some won’t allow any property type. Generally, however, you can get a hard money loan for any of the following types of properties:
- Single-family homes
- Multi-family properties
- Commercial real estate
- Land lots
There are many reasons why someone may seek a private money loan over a conventional mortgage.
Typically, it’s best to get a private money mortgage loan only if you can’t get a conventional mortgage. If you have great credit and a good income and employment history, then the process of applying for a conventional mortgage may be more straightforward and a better choice.
However, there are a variety of reasons why someone may choose to get a private money loan instead of a conventional one. Here are some of the top reasons:
- You have a low credit score
- You need cash more quickly than you can get with a conventional loan
- The property is in poor condition and won’t qualify for a conventional loan
- You’re planning to fix and flip a home
- You already own multiple properties and need to purchase another one
There are other situations when it may make sense to get a private money mortgage loan as well. However, these are some of the main situations in which it may be a great decision.
Important Things to Know About Private Mortgage Loans
It’s important to realize that although private home loans can be useful in certain situations, they come with their drawbacks as well.
One of the main things to keep in mind is that the interest rates will typically be a lot higher with private money mortgage loans than with conventional mortgage loans. Because these loans will be riskier for lenders, the interest rates will reflect that.
Another disadvantage of these loans is that they are secured. Like a typical mortgage, it’s possible that you’ll lose your home if you’re unable to pay back the loan on time.
In addition to this, the loan lengths tend to be much shorter with private loans than with conventional mortgages. This means that you’ll be more at risk as a borrower. If anything unexpected happens and you’re unable to pay back the loan, then you could lose the property.
Requirements for a Private Money Loan
Although getting approved for a private mortgage money loan is typically easier than getting approved for a conventional loan, there are still some things that you’ll need to do to get approved.
Primarily, a lender will be concerned with the equity in the property rather than with credit scores and credit history. However, you’ll need to prove to a hard money lender that you’ll be able to pay the loan back successfully.
It will be important to have a clear plan for paying back the loan and the interest if you want to get approved for a private mortgage loan.
There are many ways that you can do this. You could prove your ability to pay back the loan with your income from a job or income from another property.
You may also be able to borrow money if you simply have a good plan for renovating the property and raising its value. If you have a good investment plan such as finding long-term renters for the property, then that could be helpful as well.
Whatever way you choose to pay back the money, you’ll need to prove this to get approved and get a loan from a hard money lender.
Understanding the Benefits of Private Money Mortgage Loans
If you want to buy a property and are unable to get a conventional mortgage in California, then you may want to consider private money mortgage loans. A private mortgage loan can be a great choice in certain situations and if you can’t qualify for a mortgage from a credit union or bank.
Ready to apply for a private mortgage loan? Contact us today to learn more about what we can do for you.