Home For Sale! Should You Consider Creative Financing Options?

When you find a home for sale but you're not sure you will qualify for a traditional mortgage, you may want to consider the private mortgage lender. These lenders are ordinary people who are looking to make an investment. The private lender can choose to secure the funds through a commercial agreement or personal investment. The real estate is what is negotiated as the security. Make sure the terms are negotiated carefully to create a win-win situation between the buyer and lender.

Private lending, along with lease options and "owner will finance" arrangements, are becoming the popular answer to real estate investment, especially with the recent debacle in subprime mortgage lending, bank and insurance collapses, and the plummeting stock market.

Make sure you have knowledge of the basic documents required before you decide on a private lender. The documentation typically includes a promissory note, mortgage, certificate of insurance, and a disclosure statement. Keep in mind any federal or state security issues that may come up when you use a private lender.

The most important document you will negotiate is the promissory note. The promissory note will create all the expectations between the borrower and the lender. It explicitly lays out the terms and conditions under which you will borrow the money. Read through the clauses carefully and make sure that you aren't tying your hands in the future.

The mortgage secures the terms of performance of the borrower. Most lenders will have a title clerk or attorney file it to be certain that it is done properly.

The certificate of insurance is very important. You could forfeit any rights to your real estate if you allow this to lapse. There are usually very specific terms mandated by the state and requested by the lender. The insurance certificate will usually include an owner's title policy and a lender's title policy.

The disclosure statement states exactly what purpose the property is intended for. It is your job to disclose any information that might add risk to the private investment. It is important to include a clause about a change in the purpose of the property.

Locating a private lender will probably be the most difficult part of the deal. Despite this, private lending appears to be growing. It is becoming even more popular as the ongoing credit freeze has shut out some individuals and private investors from obtaining money from more traditional sources. Many people are considering private loans because the return can be anywhere from 8%-15% with minimal risk. This far exceeds the amount of money that the lender can make with a CD or bond.

Try seeing a transaction specialist for referrals. Networking with home buying groups that have a long list of potential investors is an excellent way to find this type of loan.