If you’re going to take out a private mortgage, you’re starting a relationship with a lender that will work a little differently than what you can expect from a bank or other traditional lender. Let’s take a look at some of the key differences, so you’ll know what you have in store.
Most people take out a private mortgage to get started on home ownership while they’re still repairing their credit. Private mortgages generally have short terms (often one to two years) and sometimes just allow interest-only payments. Private lenders do not have to renew mortgages when the term expires, so you want to keep your options open by making your repayments on time. Your credit score will improve (increasing your chances of a transition to a bank or other traditional lender at renewal). If you realize that you need to adjust your withdrawal date for a particular payment, give your lender at least a week’s notice.
If you change employers during the term of a private mortgage, there are no requirements mandating that you update that information. However if you do provide that update, you strengthen your relationship with the private lender, showing that you are serious about bettering your financial situation. Even if you haven’t notified your private lender of the change, that will be a requirement for extending or renewing the loan in many cases.
Improving Your Credit
If you took out a private mortgage while you intended to improve your credit, there are improvement counselors who can help you get that score up. The purpose of this is to help you qualify for a bank loan when the private mortgage term expires – which will save you tens of thousands of dollars over the amortization of the entire mortgage.
Obtaining New Credit
Try to avoid opening new lines of credit, and keep your credit inquiries to a minimum during the term of your private loan. These activities can affect your score adversely, which definitely will not help you when it’s time to shift from a private lender to a bank or traditional lender.
The Value of Communication
Remember – a private lender is entrusting you with a great deal of capital. The clearer your communication is, the stronger your relationship will be. Private lenders are much more willing to work with borrowers who are honest and upfront.