In today's ultra competitive mortgage market, real estate investors are increasingly turning to private mortgage lenders to provide them with the finance solutions they need to conduct their business. It used to be that the banks and other, larger financial institutions had the mortgage business sewn up and that competitors could not get a toe hold. However these days, things are different. Thanks to a lack of willingness on the part of the banks to get serious about their lending criteria, smaller private mortgage lenders have seen an opening and jumped at it.
Private mortgage lenders have quickly carved out a niche in supplying professional lending services to real estate professionals. While banks and other traditional lenders provide lending services to home owners and owner occupiers, private mortgage lenders provide their lending services to real estate professionals. By providing this specialized, flexible and fast service they provide a vital source of funds for investors who would otherwise struggle to meet the conservative and narrow lending criteria set out by traditional lenders.
You see, banks and other traditional lenders have very strict lending criteria which must be adhered to by managers and loan officers who have very little room to move at all. This lack of flexibility led to many people being denied finance on excellent income producing properties - enter the private mortgage lender. Private mortgage lenders have the flexibility that traditional lenders do not - but there are also many other reasons why private mortgage lenders are fast becoming the choice source of real estate finance for real estate investors. Here are the top three reasons.Credit: shula @ Morguefile.com
1. Private mortgage lenders provide flexible lending criteria
Unlike the traditional lenders, private mortgage lenders have very flexible criteria when it comes to assessing and approving applications for real estate finance. So instead of asking silly irrelevant questions about your own personal finances, the loan assessment process looks and the value of the property and the income it produces in deciding on the loan. This will make sense to many of you who will have had applications for finance refused on the grounds that your credit card limit is too high when you don't owe a thing on it and you are looking to buy a great property that will pay for itself.
While a loan assessor in a bank may be able to see very well that an application for real estate finance makes sense, and that the serviceability of the loan is not in question, the strict lending criteria make approval a difficult prospect. Private mortgage lenders, due to their small size and flexible approval practices, often look at each application on a case by case basis. There is generally no one size fits all lending criteria.
2. Quick access to funds thanks to private mortgage lenders
A good private mortgage lender will not only provide a excellent service and flexible lending criteria, but also quick access to funds. There comes a time when any real estate investor wants the cash quickly to secure a great deal they have brewing. The thing is though that these deals don;t often last long and you have to be prepared to strike while the proverbial iron is hot. For this reason more and more savvy real estate investors are forming good working relationships with private mortgage lenders in order to facilitate quick processing of applications and therefore quicker access to funds.
Most private mortgage lenders will be able to complete a mortgage contract down to the provision of funds within a week. This includes assessment, consideration and exchange of mortgage contracts as well as the transfer of funds. I don't know of any traditional lender that offers that kind of service - or that speed. For many real estate investors, speedy access to funds is crucial to the success of their business, and if a private mortgage lender supplies that access then that lender will be a crucial part of that investor's business.
3. Private mortgage lenders know about real estate
If you go to a traditional lender for a mortgage, you are approaching someone in the finance business. In contrast, if you go to a private mortgage lender for real estate finance you are working with true professionals in funding real estate transactions. They know the industry and the real life deals that form the basis of running a successful real estate business. That is the sort of dedicated specialized knowledge that investors want from the people that provide finance.
While traditional lenders may provide adequate service, private mortgage lenders really know their stuff and you will find yourself answering far fewer irrelevant questions than you would working with a traditional lender. It makes sense to source your funding for your next real estate investment from someone who knows what you are doing.
Private mortgage lenders offer a vital and complete real estate finance service to real estate investors. Sure, there are extra costs involved in getting a loan through private mortgage lenders and the terms are a little different, but that's the price you pay for flexibility and professional experience in a specialized field. If you are not aware, the extra costs involve an extra percentage point or two about prime for the life of the loan, which is also generally short (6 months to 2 years on average).
So while a private mortgage lender may not be the cheapest choice for you in terms of accessing mortgage funds for your next real estate investment purchase, it sure is the quickest and most convenient option. Applying for finance with a bank is a lengthy process and they apply far less flexible lending criteria than do private mortgage lenders. Providing the subject property produces an income and the loan value ratio is reasonable (ideally less than 75%), you may be in business. You may be surprised by the speed at which you have access to funds to secure the deal you have negotiated. So if you are a real estate investor and you have been frustrated by the lack of vision in the mortgage arms of the major financial institutions, approach a private mortgage lender to see what they can do for you.