If you’re looking to buy a commercial or residential property and want a mortgage, you have two main options: financing through a traditional bank or using private money.
While both methods have pros and cons, depending on your specific situation — and your personality — one may work better for you. Here’s what you need to know about each option before committing cash.
Why use private mortgages?
So why use private mortgages? Here are a few reasons:
- The interest rates on private mortgages are typically lower than those offered by banks, but they’re not always lower.
- To understand equity vs debt in real estate investing, it’s essential to understand the difference between equity and debt. Real estate investors always use these terms, but many aren’t sure what they mean. This can be confusing when you’re trying to decide whether or not to take on debt.
- You can get a lower down payment. For example, some lenders may allow you to put down as little as 5% instead of 20%. The more you put down on your investment property upfront, the less risk there is for both parties involved in this transaction–and thus, the less expensive it will be for them!
- It’s also important that any money used towards closing costs be paid immediately so that all cash flow goes directly into paying back this loan instead of going towards something else first (like taxes).
How do you find a lender?
- Finding a lender is the first step to financing your real estate investments. You’ll need to find someone who can offer you options and help you qualify for a loan, so it’s essential to do your research upfront.
- There are several ways to go about finding lenders:
- Contacting friends and family members for recommendations. If you have any friends or family members who have financed their properties, ask them who they used as their lender and why they think that person was great at what they did–this will give you an idea of what kind of qualities make up a suitable lender in general (and may even lead directly back towards one of our previous tips).
- Using online resources such as Zillow Mortgage Marketplace, where there’s no shortage of listings from various lenders around the country offering various services, including preapproval letters or even interest-only payments if necessary!
What are the cons of private mortgages?
The cons of private mortgages are:
- Interest rate: The interest rate on a private mortgage is not fixed and can change at any time.
- Debt burden: You could be in debt for many years if you don’t have enough money to cover the cost of repairs or renovations as they come up.
- You may also need to pay more interest than you would with a traditional mortgage because your lender has no incentive to keep your payments low since he/she isn’t selling or refinancing on your behalf like banks do when they issue conventional loans.
How does refinancing work?
Refinancing saves money because it allows you to lower your monthly payment and potentially reduce interest costs over time.
Here’s how it works: For a lender to approve your current purchase offer on a property, they require a 20% down payment (or $20,000). If this amount is more than what you have saved up at the closing time or want to spend out of pocket as part of making an offer on real estate, then refinancing could be beneficial for getting approved–even if nothing else changes!
There you go!
In conclusion, it is essential to note that refinancing is not the same thing as financing. You can use a private mortgage to finance your real estate investments without refinancing your loan.
The pros and cons of doing this will differ depending on what kind of property you buy (condo vs. the house), how much money you have saved up in reserves, and whether or not you plan on selling within the next few years.
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