We’ve talked before about the average private mortgage investor and what they look like. Plenty of capital and an appreciation for the low risk nature of private mortgage investing were just two of the most common traits among ‘typical’ investors. But what about the borrowers? Those who’s mortgage you’ll be supporting? What do they look like? A lot like this:
- Self-employed individuals that don’t have enough proof of income for the major banks. Stated income mortgages are now a thing of the past, leaving this group out of the mortgage market almost completely.
- Borrowers that already have a first mortgage with one of those major banks, but need additional funds. Often the same bank won’t provide them with a second mortgage and so, these borrowers need to turn to private mortgages.
- Those who qualify for Alt-A mortgages. At any of the major banks there are very high premiums placed on these products, leading borrowers to often turn to private mortgages to get the exact same financing, but at a lower price – and often through a first and second mortgage combination.
- Don’t have the credit to be approved for a mortgage at a major bank. Credit scores are important, but private mortgages rely more on down payments than they do credit scores. Banks often won’t even look at borrowers with low credit scores, but so often these same individuals have every other requirement to get a mortgage. They then turn to private mortgages to get the financing they need.
- Borrowers with bruised credit scores. While not exceptionally low, these borrowers have had one or two instances of trouble with their credit in the past. Because their score is not exceptionally low, the banks will still provide them with a mortgage. However, because it’s also not exceptionally high, those banks will still charge a large amount of interest on those mortgages. Borrowers know there are other, cheaper venues, and they often explore them.
These are just a few of the most common types of borrowers you’ll get with private mortgage investing. Also don’t forget those borrowers who know that they could be approved at a major bank, but also know that going private may just result in a faster, easier mortgage process for them!