Real estate investing is about more than finding the perfect property. Having the right loan in place to buy the property means that you can add the investment to your portfolio without encountering any significant roadblocks.

If you were trying to buy a residential home that would be your primary residence, you’d likely apply for a conventional mortgage. The problem with these mortgages is that they usually have strict lending requirements. If you’re investing in real estate, your best bet is to seek a loan from a Private Mortgage Lender. These lenders are sometimes also referred as Private Money Lenders or simply Private Lenders. This guide explains everything you need to know to find the perfect private mortgage lender.

What Are Private Mortgage Lenders?

When you hear the term “Private Mortgage Lender”, it can apply to many different funding providers. Any financial institution that lends money but isn’t a bank or credit union could be a Private Mortgage Lender.

Private lending companies loan money to individuals and businesses alike. Since they’re not tied to a credit union or bank, they can offer a wider range of loan options. Furthermore, it’s often easier to meet their lending requirements.

Characteristics of a Good Private Mortgage Lender

When you start searching for the right Private Mortgage Lender to apply with, you’ll find that there are many financial institutions to choose from. Do your best to avoid applying with a lender that will charge you an arm and a leg in interest rates and closing fees. You can narrow your options and find a good Private Mortgage Lender by knowing what to look for.

First, consider lending flexibility. The main reason to apply with a Private Mortgage Lender instead of a traditional bank is because of the more flexible lending options that you can gain access to. Before agreeing to the loan terms, read them thoroughly. If you don’t understand something, ask questions about it. If the lender is unable to resolve your concerns, the deal itself may be unfair.

Lender credibility is also crucial. Private Mortgage Lenders build good or bad reputations based on the experiences their customers have. If a Private Mortgage Lender you’re considering has a stellar reputation with hundreds or thousands of satisfied clients, you can be confident that you’re not being swindled.

You should also pay close attention to the interest rates associated with your loan. While private loans can come with higher interest rates because of the more lenient lending terms, they shouldn’t be unreasonable. If the national average for a 30-year loan is 6.75% but you receive an interest rate of 19%, you’re not getting a fair deal. When you’re uncertain about how much you’ll be paying, ask questions until you know the exact amount.

Keep in mind that Private Mortgage Lenders charge certain fees that you’ll need to pay alongside the interest. These fees vary from lender to lender, which is why you need to do your research before coming to an agreement. Scan the lending documentation to locate the fees you’ll need to pay at closing. If you don’t understand what some of them are, don’t hesitate to seek clarification. Add up your interest and fees to calculate the amount you’ll pay for the loan.

Before you enter the closing process, you’ll receive a contract to sign, which outlines the lender’s terms. While you’ll likely spot a lot of legalese in this document, you need to read it carefully. Lenders that don’t mind taking advantage of borrowers will place bad terms within the lengthy documentation. Don’t sign the contract until you gain clarity about anything that you don’t understand.

Reasons to Seek a Loan from a Private Mortgage Lender

Real estate investors have many reasons to choose Private Mortgage Lenders over conventional ones. The main benefit of making this choice is that the loan should come with easier qualifications. After the 2008 financial crisis, far stricter lending regulations were put in place, which made it more difficult for investors to qualify for mortgage loans.

However, Private Mortgage Lenders don’t need to follow these same guidelines. The easier qualification requirements available from Private Mortgage Lenders mean that you could be approved for a loan even if you have a low credit score. Some Private Mortgage Lenders will even underwrite loans without checking the borrower’s credit.

Private Mortgage Lenders offer a wider range of products as well. When you seek a loan from a traditional bank, you’ll find that there are just a few viable options to choose from. Banks only provide loans that have low risk exposure, which means that they can’t tend to the unique needs of an investor.

Private Mortgage Lenders can offer financial products that come with highly varied terms. These products include everything from hard money and bridge loans to bad credit loans. Private Mortgage Lenders are also more accommodating to investors who need access to liquid capital and less traditional loan formats.

An additional advantage of working with a Private Mortgage Lender is that you shouldn’t have as much documentation to sign. All conventional loans come with mountains of paperwork that can take forever to get through. You’ll also need to provide the bank with a lot of documents to verify your income, savings, and credit. Most of this isn’t necessary when you apply with a Private Mortgage Lender. A few basic forms should be enough to get you the financing you need for your next investment property.

If you applied with a traditional lender, you’d likely be forced to accept a 15-year or 30-year term. Private Mortgage Lenders don’t usually work this way. They’re more flexible when creating lending terms and will often work with you if you’d like a shorter repayment period. Depending on your investment strategy, you may benefit from a five-year or 10-year repayment term.

Whether you’re searching for a more flexible loan, or you fear that you won’t be approved for a conventional one, consider applying with a Private Mortgage Lender. With this guide in hand, it should be easy for you to find a Private Mortgage Lender that offers great terms, a quick lending process, and varied loan products. Reach out to our friendly LoanPathLoans staff today if you have more questions about Private Mortgage Lenders.