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Question about a mortgage loan: private party vs. traditional lender/bank? |
Potentially an obvious real estate question, but hey, it's Yahoo answers, so I'm free to ask all the silly questions I want here: Instead of getting a costly mortgage with a lender like Countrywide, why can't I just go out and find someone with captial and say, 'Hey, would you give me a $150,000 loan at 4%, and I'll give you first lien on the house if the payments are default?' The deal is signed at a title company and I have an EFT draft created to deduct cash from my bank for each months payments. The benefit to me is a smaller monthly mortgage payment. The benefit to the lender guy is that he draws 4% for nothing, and he can potentially bag the house if I default (which would be very unlikely to happen). PROs/CONs to this plan? And what am I missing that might be painfully obvious here? (and no, I have no plans to do this. It's just something I've been kicking around. And besides, I wouldn't even know where to go to find a rich person willing to do this anyhow..:) your plan is not a plan, it is a wish wait for it to come true one day. Dreamer! I am a mortgage broker and the answer is that you can get a private investor. The problem is that most private investors will not give you a 4% interest rate and also that they will want to see you invest some of your money first so if you are looking to do 100% financing that is really not an option. There are a few things that your forgetting in your line of thought. 1) A seller that is willing to hold the note for a property that he/she is not going to hold a note for 100% of the property value. Typically they will hold a note for 10-20% of the mortgage, but it will not be at 4%. Prime at this time is 7.75% so if your lucky, you'll get prime. Secondly they are not going to hold the note for 30yrs. They are going to want a balloon payment in 2-4 years (depending on their mood). 2) Hard money lenders (the rich people) will not lend on property with more than a 60% LTV. Meaning that you the borrower would have to supplement the remaining value of the purchase. And don't try to sneak in a second the day after closing on them. They will run a title search to make sure that doesn't happen. Also, they will not lend on primary home, just investment properties. Last but not least...the cheapest hard money lender that I dealt with charged my client 14% w/2pts. That's expensive money... Loan Consultant Mortgage companies are regulated by tons of different people to protect you and to protect themselves. If you were to get a mortgage from an individual, the actual documentation may not have the same provisions and protections. This individual may have some crazy rights through the non-standard documents that would not be in place otherwise. i.e. foreclosure after one late payment or something equally ridiculous. In addition, I also doubt than anyone would lend money at such a low rate. If someone has this much money, they are probably getting a better rate of return on a money market or CD or almost everything else right now. Yes there are private investors or "hard money" lenders out there but their rates are generally in the 12%+ range. You could possible get something close to that with a contract for deed arrangement in which the seller maintains all the tax advantages of the home and you make the payments. You would generally be subject to the existing note on the property, unless you found one that was free and clear. In that situation you could possibly work out something else with a lower rate, but I doubt you would ever get someone to offer you anything better than what a traditional lender would give you. Good thinking- but doubt it would ever happen. |
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