If you are facing a credit crisis like many American homeowners, there is still a way for you to keep your home. If you cannot qualify for a traditional mortgage, you might be able to secure a mortgage through a private individual or a company specializing in private lending.
What You Need to Know About Private Lenders
There are a few things about private lending you will need to know. First, those who specialize in private loans do not care about your credit score, but they do care about your equity.
You can find these lenders through a trusted mortgage broker, real estate agent or financial planner. Many private lenders will only lend to those who have 30 to 50 percent equity in the home and will charge between 9 to 14 percent interest. If you go with such a lender, be careful to find a home that is substantially undervalued. This will give you a way out should you need it, allowing you to sell or refinance the property.
Sites like proper.com and lendingclub.com can be a source of lending for some. Most of these private lenders will not lend to anyone with a credit score below 640. In addition, many want to see a debt to income ration before the mortgage of 25%. If you have managed to weather the storm with your credit score intact, these sites may offer you some options.
But, because so many of us have little equity in our homes right now, you may be better off going with private individuals who are independently wealthy. Some are willing to purchase your home at auction and then arrange for a rent-to-own situation until you can again secure traditional financing. Others purchase homes but will only agree to rent it back to you. How do you find these individuals? It’s a little luck plus a little hard work.
How to Find a Lender
Believe it or not, you are probably within two or three degrees of separate from someone willing to buy your home so you can buy it back or rent it. The first thing to do is believe that you can find someone. You will be amazed what is possible when you simply ask. It’s important that you network with friends and family and get the word out that you need financing. Start this process as soon as you determine a loan modification is not going to work for your situation. Check back with contacts regularly to see if anyone has turned up. Once you find a lender, you can go through sites like www.virginmoneyus.com to structure the loan or use a real estate attorney to help you draft the necessary documents.
Other Options Online
Homeequityshare.com is another option in which someone seeking a loan posts a profile. An individual who wants to get into real estate investing will look through profiles and choose investments that fit their preferences. The two are connected and work out the details themselves. The site offers model contracts to help the parties come to a mutually protective agreement. In a typical situation, the investor helps the borrower secure the property and gains a stake in the property in exchange. At the end of the agreed term, the property is sold and the equity distributed to the homeowner and investor, or the homeowner may buy back the equity stake from the investor at the appreciated value.
Know the Risks
Before going for a private mortgage, be sure you understand a few things about these types of lenders. For instance, a private lender can be any individual with excess funds available for lending. They can be doctors, lawyers and other professionals who lend money as a source of second income, making most of their money through their jobs. These investors are often more willing to take risks because their livelihood is not threatened should things go sour. However, these lenders are not banks, so they are not subject to banking regulations made to protect individuals.
Because you cannot rely on banking regulations to protect you in a private mortgage, it is important to protect yourself through the loan contract. Be sure to read terms carefully and never give money upfront for application fees or other fees on a private loan. Be sure that you understand everything before you sign. Check that the current and future fees and interest rates are clearly indicated. Be sure you use a service like that through virginmoneyus or pay your real estate attorney to review or draft the mortgage contract so that it protects your interests.