Sometimes, getting the home or commercial real estate loan you need is challenging. The good news is that if you can’t qualify for a conventional loan, there are other options.

Private money mortgages are an option that not everyone considers. Private money mortgages are sometimes referred to as “Hard Money” loans because they’re tied to a hard/tangible asset, like a home, as collateral. And while it’s true that these loans aren’t for everyone, for the right buyer in the right circumstance, they can be just the ticket to getting the funding you need.

Private money mortgages are loans that typically come from investors rather than banks. As such, the investors have more leeway and discretion on choosing who to lend to. The principle qualifying factor in a hard money loan is the equity of the asset being used as collateral. A private money lender wants to ensure that there’s enough value to cover their investment and their return on that investment, so they will typically only lend if the borrower is able to create a favorable equity situation for the property being purchased.

More simply put: the home has to be worth more than the loan amount by a significant margin. This means that typically, a borrower getting this kind of loan will need to make a larger down payment on the house than they would be required to on a conventional loan, and they would typically pay a higher interest rate.

Private money mortgages are ideally suited for those who have access to cash but poor or no credit, or other encumbrances (like an existing mortgage) that would impact their ability to qualify for a conventional loan.

So why would someone consider seeking a private money mortgage? And is it something you should look into? Here are five reasons you may want to explore this option:

5) You’re self employed.

If you work for yourself and have income that is difficult to document, a private money mortgage may be right for you. Conventional lenders want to see employment history, stability of income, paystubs, tax returns, etc. But what if you’re a small business owner and you’ve been writing off expenses to keep your taxable income manageable? Not showing income doesn’t mean you can’t make payments. If you’re cashflowing through a small business but don’t have income to show on paper, private money may be a good option for you.

4) You have non-traditional income.

Similar to the problem faced by the self-employed would be that of the entrepreneur who works as a freelancer, independent contractor, or artisan. It’s going to be harder for you to provide the proof of income required by conventional lenders. If you’re being paid via 1099, selling items on Ebay, Etsy, or Craglist for supplemental income, being paid for freelance writing or graphic design, or something similar, you may fall into this category.

3) You have a recent bankruptcy, foreclosure, or short sale on your credit report.

It happens. At some point or other, everyone falls on hard times. If within the last 5-10 years you’ve been forced to file bankruptcy, have had a home foreclosed on, or had to short sell your house, you may need alternative financing. Since each of these scenarios stays on your credit for a number of years, it can make it very difficult to get a new mortgage unless you’ve had enough time to rebuild your credit score and general credit-worthiness.

Having these items on your credit is not an indication that you lack sufficient income or an ability to make your payments. You can have these major issues on your credit while at the same time having a high-paying job. Perhaps you can comfortably afford a house payment, but you just can’t get a loan because of your credit history. If you have the money to put down, private money could be a great option.

2) You’re retired with minimal income, but you have assets.

I’ve written before about asset depletion lending for those with qualifying retirement funds with significant balances and little or no income. But a private money mortgage may be another good option. If you have money to put down and the ability to make payments, it’s worth considering.

1) You’re looking to invest in a property that you plan to sell in a short period of time.

Private money mortgages are a favorite of investors. They serve as excellent short-term loans for fix and flip properties, and even those with higher interest rates still pay off with the right transaction.

If you’re looking to get into property investment but need help with capital, private money mortgages are a great resource.

Some things to keep in mind about private money mortgages

• Not all lenders are created equal. Look for reputable mortgage brokers Phoenix that provide access to these funds to avoid dealing with unscrupulous lenders that may take advantage of unwary borrowers.

• Private money mortgages require more money down than conventional loans. Expect to be required to put anywhere from 25% to 30% down on the purchase of a home or commercial property.

• Interest rates are higher than conventional loans. Private money mortgages obtained through Signature Home Loans are typically between 4.5% (APR 4.95%) to 9% (APR 9.45%).

• In most cases, 3 Points will be charged in addition to standard lender fees.

Do you have questions about private money mortgages or want to find out what it takes to qualify? Have a look at our private money mortgage page or contact us for more information.

More Questions About Private Money Mortgages? We Have Answers!

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