Pros and Cons of Private Lenders and Private Mortgages in Vancouver

It’s every citizen’s dream to be the owner of their own dream home. With the constant fluctuation in the retail market and country’s economy, it can be a real headache buying your own home. If you are already the owner of a home, you can consider investing in real estate.

Real estate investment has become one of the safest and smartest financial strategies that promises great return. Buying properties in Vancouver can be highly beneficial for property developers and retail investors.

If you’ve ever looked into home prices, you will know that a decently modern home doesn’t come cheap. Having a few million dollars laying around or saved up can be highly unlikely, especially for first-time buyers.

In order to purchase a home, individuals can apply for a mortgage loan either at a bank or at a private entity.

WHAT IS MORTGAGE LENDING FROM A BANK?

Taking out a mortgage from a bank, means that you will have to sign a legal agreement between yourself and the banking company. In return the bank lends you money to pay your house. This means that the bank will purchase the house on your behalf through the realtor. As a result, the bank is the owner of your home until you can pay back the debt.

In exchange you have to pay an interest each month on the amount still owed. Paying a high interest will result in you purchasing a home at a much higher rate than purchasing it in cash.

The risk of applying for a mortgage through a bank might be that they will refuse giving you the full amount needed. This is usually due to a low income, or a bad credit score. Because of this reason many individuals turn to private mortgage and private lending opportunities.

WHAT IS PRIVATE MORTGAGE AND PRIVATE LENDING?

Instead of borrowing money from the bank, alternatively you can borrow from Vancouver private lenders. If you needed a large sum of money to purchase a home or to inject into a starter business, you can borrow money from private investors.

Individuals who aren’t part of a bank or institute use their own capital to invest in other’s real estate purchases and other financial ventures. When you borrow money from a private individual or non-institutional company, you are also liable to pay back money you have borrowed with interest.

This alternative option is usually applied for by individuals who can’t loan money from the bank due to employment issues, bad credit scores, or low income.

PROS AND CONS OF PRIVATE MORTGAGE AND PRIVATE LENDING:

PROS:

Quick Process - Compared to the lengthy process you have to take on when applying for a loan at a bank, a private money loan can be issued in only a few days. Depending on the amount of money you want to borrow and for what. You can be qualified within a few minutes and receive the funds within a week or two.

Even though there are still loads of paperwork to be filled in, the approval and funding process is quick.

Credit Score Qualifications – Candidates with a low credit score are still eligible to be approved, even if they are turned down by a bank.

Become a Private Lender - On the other side, if you have enough capital you can consider becoming a private lender. Instead of dealing with remodeling and renovating properties as a property developer, investors can consider becoming a private lender.

Tailored Plans - Interest rates and monthly installments are specifically tailored to every individual’s situation and needs.

Financing for Purchase and Renovations – Private lenders finances the purchase of a fixer-upper home as well as the amount it will cost to renovate the property. Compared to banks that usually only finance properties that are already in good condition.

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CONS:

Higher interest rates – Especially if you have been turned down by the bank because of a bad credit score. You will most probably have to pay a higher interest rate at the beginning. Although this seems like a con in the beginning. Paying a higher interest rate for a private lender will still be much lower than interest rates attached to personal loans and credit cards from banks.

Long-Term Higher Costs – Interest rates vary between 7%-12% and sometimes even higher. There are also other costs involved like service fees or lender fees that can be as high as 10%. Prepayment fees as well as independent appraisal fees can also be included in a long-term payback scheme.

Short-term Payback Schemes – Conventional mortgage plans offers a longer payback period. Compared to private lenders who gives the client a short-term payback plan. For small hard money loans, the client can have as little as 3 months to pay back the initial amount.

Private mortgage loans can have money payback terms between 1-3 years.

That’s why it’s important to plan financially ahead when considering a private loan from a non-institution.

Private lenders are extremely beneficial for people who wants to flip houses in the short term. Buying, renovating, and selling a property within one year will give you the opportunity to pay back the debt quickly and easily. Without having to invest your own money, while still making a profit.

If you are an investor without the right amount of capital, you can make a quick hard money loan to be able to compete with other cash buyers in the market.

In conclusion, private lenders and mortgage lenders can be extremely beneficial for certain individuals.