When a bank denies your mortgage application, it can feel like a dead end. But that doesn’t mean you’re out of options. A private mortgage can provide the flexibility you need when traditional lenders say no. Understanding what this type of alternative lending offers, and when to use it, can help you move forward.
How Private Mortgages Can Help When Banks Refuse
What Is a Private Mortgage?
A private mortgage is a home loan offered by a lender outside the traditional banking system. These lenders may be individuals or mortgage investment corporations (MICs). They look beyond credit scores and standard income documentation, focusing instead on the property’s value and available equity.
Private mortgages are typically short-term, interest-only loans used to solve immediate financing needs. They’re commonly used by people with poor credit, self-employed income, or unconventional properties that banks won’t finance. Because private lenders assess each situation individually, they are often able to create lending solutions tailored to the borrower’s specific circumstances.
Why Banks Deny Mortgage Applications
Banks follow strict lending criteria. If your credit is damaged, your income is inconsistent, or your debt level is high, your application may be denied. Some borrowers are also rejected because the property they want to finance is considered too risky. Others might face rejection simply because they don’t meet the bank’s narrow approval formula, even if they’re otherwise financially stable.
Private lenders approach things differently. While they still assess risk, they’re more willing to look at the full picture. Their flexibility makes them a strong option for people who don’t meet traditional requirements. They may approve a loan based on the property’s potential value or your overall financial recovery plan, rather than just credit scores.
How Private Mortgages Work
Private mortgages usually carry higher interest rates and shorter terms, often one to three years. Loan amounts are based on loan-to-value (LTV) ratios, with most lenders offering up to 75% of the property’s appraised value. These loans are designed as temporary solutions while the borrower works toward qualifying for traditional financing.
The approval process is typically faster than with a bank. Once documents are submitted and the property is assessed, funding can happen within days. This makes private mortgages ideal for time-sensitive situations, such as preventing foreclosure or closing on a property quickly.
Pros and Cons of Private Mortgages
Pros:
- Easier qualification process
- Quick approval timelines
- Flexible with credit and income
- Ideal for self-employed or unconventional borrowers
Cons:
- Higher interest and fees
- Shorter loan terms
- Limited regulation compared to banks
Private mortgages are best used for short-term needs. They’re not ideal as long-term financing options due to their cost, but they can provide essential breathing room.
Why Work With a Mortgage Broker?
Navigating the private lending space can be tricky. A mortgage broker helps by connecting you with reputable mortgage lenders, comparing offers, and explaining the fine print. They also help you evaluate whether a private mortgage fits into your larger financial goals.
Brokers understand the alternative lending market and can advise you on when and how to transition to a more affordable mortgage in the future. With their help, you’re more likely to avoid risky lenders and find terms that work in your favour.
Find Relief With a Private Mortgage
Private mortgages offer hope when banks close their doors. With expert help and a clear plan, they can provide the breathing room you need to rebuild your credit or get through a financial challenge.
Reach out to Northwood Mortgage today at 888-495-4825 or click here to get in touch online.
