What is "Private Mortgage Lending"?

Private Mortgage Lending is the lending of a private individual’s money to borrower(s) who offers real estate security for the loan by way of a publicly recorded (in some cases unrecorded) mortgage. The mortgage secures the loan that is evidenced by an original loan agreement. The mortgage secures the loan agreement in the event of a default by the borrower.

Why does someone borrow money from a “Private Mortgage Lender” ?

The borrower, in most cases, must turn to the Private Mortgage Lender because they have been turned down for a mortgage loan by one or more institutional lenders, such as a bank, credit union, finance company or mortgage company. These institutional lenders are offering conventional mortgages such as consumer home loans and investment loans.

Institutional lenders have many requirements that the borrower must meet. The real estate security must meet certain criteria as well.

There is a lot of red tape with conventional lending; the process is cumbersome and can take a lot of time. Many borrowers are shut out of the process with institutional lenders, because they cannot prove their income or they have bad credit or both.

In addition, the borrower can be shut out because the real estate is only land with no improvements on it, or the property is too rural or in need of some minor repairs. Many institutional lenders have guidelines that are very strict and inflexible. The borrower usually does not turn to relatives to borrow the needed money because the amount of money is too great for a relative to lend.

Hence, the door is opened for the Private Mortgage Lender. The Private Mortgage Lender is sometimes called a Private Mortgage Investor. They are simply private individuals lending their own money to a borrower.

As the Australian Credit environment is changing as a result of the global credit crisis, institutional lenders have become increasingly more selective and have dramatically increased credit requirements, pushing business (and the associated risks of mortgage lending) to the Private Mortgage credit sector.