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In this case, borrowers may not want or be able to provide personal financial information or go through the hassles of the application process associated with obtaining an institutional mortgage loan. They may be going through a divorce or business separation and may not want their spouses, partners, government, lawyers, etc., to obtain their personal financial statements.
Additionally, borrowers may not have all financial information on their real properties and businesses up-to-date or complete; they may have filed for an extension on their latest tax returns; or their accountants may be behind in preparing their financial statements. While all these scenarios would negate or at least delay getting an institutional mortgage loan, they should have no effect on a borrower’s ability to obtain a private mortgage loan.
Another reason real estate investors consider private mortgage financing is that they may be able to borrow more from private or hard-money lenders and therefore have less of their own capital invested in the property. Institutional mortgage lenders lend based on the lower of the cost of the property or appraised value of the property; private mortgage lenders lend based on the appraised value only.
Hence, real estate investors who use private or hard-money loans are not penalized for purchasing property at a significant discount to market value. Additionally, most private mortgage lenders do not have onerous seasoning requirements to make the loan.
When searching for loans for your clients, private mortgage financing can be quite profitable for you and your business — a win-win situation for both you and your clients who may not qualify for institutional mortgage loans.
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