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What are Private Mortgages?

By Dan Blacharski
Updated May 16, 2024
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A private mortgage is a legal agreement between two parties that aren't financial institutions in which one party agrees to lend the other one money in return for repayment, interest, and the borrower's real estate if he or she doesn't pay back the loan. The parties involved could be a business and a person or two people, like friends or family members. There are pros and cons to this type of arrangement for both lenders and borrowers, but many of the potential disadvantages can be avoided by careful, clear planning and documentation. Some companies also offer private mortgages as investments, most of which are aimed at medium-level, multi-year investors.

Pros and Cons for Borrowers

The main benefits of private mortgages for buyers are that they can get one from anyone, including a family member, they don't have to meet requirements that banks have to qualify for a traditional mortgage, and the terms of the agreement can be very flexible. People who lend to family members often prefer this type of arrangement because it allows them to keep all of the money involved within the family. Additionally, getting a private loan means that a borrower may not need to provide collateral, and it allows borrowers with a bad credit rating a way to improve it — as long as they make the payments — as well as gain an asset.

Despite this, there is always the risk of not being able to pay back the loan, which can lead both to financial problems and to a bad relationship between the lender and borrower. This can be especially painful for people who borrow from their friends or family members. The borrower will also likely be unable to get tax benefits, such as interest deductions, like he or she would with a traditional loan.

Pros and Cons for Lenders

If structured and documented correctly and legally, a lender can receive many benefits from a private mortgage, including a high rate of return and a steady income from repayments. This type of loan is usually secure, since it's backed by property, and it is a way to move money around fairly quickly, since most agreements last between a few months and a few years.

Additionally, these agreements are often popular among people who have a hard time selling their homes because private mortgage loans are attractive to buyers. In some cases, the seller may choose to offer a private mortgage as a wraparound loan, in which a buyer takes over payments on a current home mortgage. The seller then offers private financing for the difference between the outstanding mortgage and the sales price.

The main risks for lenders are the potential for the borrowers to damage the property or to default on their payments. Since many of the people who take private mortgages can't qualify for traditional financing, they may be unwilling or unable to make regular payments. The lender may also not have any options if the borrower dies or disappears if he or she doesn't specify any terms about passing the debt on. Additionally, there are often limits on how much interest a lender can charge, though this varies by region.

Avoiding Problems

The best way to avoid problems for both lenders and borrowers is to research local laws before agreeing to anything and to understand the risks that come with this type of arrangement. It's extremely important for both parties to secure the loan properly, agree on what's going to happen if the borrower can't make the payments, and keep copies of all documentation related to the agreement. People lending money within a family should also discuss how the new financial setup will affect their relationship and what will happen in the family if something goes wrong.

As an Investment

Some third-party private investors offer seller-financed mortgages as an investment vehicle. Investors can then buy and sell them through a financial exchange. For example, the investor can sell the instrument at a later date for a discounted price and give the seller a single lump-sum payment instead of the normal monthly payments. Another benefit of this type of investment is the inclusion of a balloon clause, which requires the buyer to either pay off the loan or convert it to a conventional mortgage. Despite this, it may not lead to as good returns as stocks or bonds, and it may take several years to make a profit, depending on the setup.

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Discussion Comments
By dsdsdsds — On Jan 25, 2014

So private mortgages are a boon for people who have bad credit scores. But still private mortgages are not popular. And how do I find a private mortgage lender?

By anon345727 — On Aug 21, 2013

If I have a private mortgage investment and it all goes wrong, what do you think I should do to counteract these problems? I'm speaking in general terms here. I haven't done any deals yet because I want to first know how any potential problems can be fixed!

By anon343467 — On Jul 30, 2013

We have a home that cost us $922,000 in Boynton Beach, Florida. The home is fully paid for. There are no loans on this property.

We are looking for a $250,000 to $300,000 mortgage on this property that we need to invest in our business. I cannot show w2 income, as I am self employed and my wife is on light disability with social security income. Her income is not big enough to qualify for the mortgage.

We are looking for an "asset based loan", however, the banks will not help us. We are looking for a private investor to loan the money secured by a first mortgage for a maximum of three years and we will then refinance or we are open to extending the private mortgage.

By anon325368 — On Mar 15, 2013

I am looking for creative financing options. I bought a home in Austin, Texas that I discovered is uninhabitable due to asbestos throughout (seller did not disclose). Two homes on my block have sold within the last six months for $400k and $500k respectively. I have a $258k mortgage and am paying $3400 per month for an uninhabitable house. I believe with a renovation and remediation this house would appraise in the low $400k's. As a demo/rebuild it would fetch $550k or more.

My credit is around 670 (there are some blemishes) but I have a solid income fully documented in the $200k-$300k range. I am looking to renovate/demo/new construction and sell and be done with this nightmare and not kick it down the road to someone else.

By anon316465 — On Jan 28, 2013

I have four rental properties, good credit (746) and a spotless payment record. My problem is debt to income ratio, depressed property values, and about half of my mortgages have high rates (two properties with 7.25 percent and lender paid mortgage insurance, which locks them out of new government programs). I also have a second with 9.85 percent and a 15 year balloon on a property that is upside down. I have also acquired $30,000 in cc debt holding on to the properties during the bad economy.

If I could get current rates on mortgages and possibly wrap my cc debt into a heloc for my residence (the equity is available), I could save about $1500 a month, completely reversing our financial picture. This would take me out of a vicious cycle I have been stuck in for about four years. I can't seem to lower my debt no matter how hard I try because of the high interest. Any suggestions?

By anon307133 — On Dec 03, 2012

I own a one-fourth share in a home that my elderly father has life use of. I reside with him as his caregiver and work a full time job. I would like to buy out the other three owners now, consolidate some debt I have and get started on some upgrades that are desperately needed.

Unfortunately, when I moved in with my father, I had to give up a part-time job and now have a debt to income problem for conventional mortgages. I need to obtain $65,000 amortized over 15 years with a 5 year balloon payment. The monthly payment needs to be around $550. The house is assessed at $66,000.

By anon292317 — On Sep 19, 2012

We are trying to sell our home with no luck yet. We would like to start building our new home before winter but need about 20k to get started. Is it possible to get a loan?

By malibupro — On Aug 02, 2012

I purchased bank owned single family home in good area of Pensacola, Fl, just renovated and rented it. I have good credit and need a first mortgage of $30K. I need funds to do it again. We are professional people and have never been late on any loan.

By michelle1022 — On Jun 06, 2012

I am desperate in Michigan! My family and I have gone through a lot of bad luck, and am hoping that a caring generous person would be interested in helping us gain a family home. Five years ago, I lost my job of 29 years, while I was seven months pregnant. Months later, we lost our family home when my son was four months old.

My husband and I also owned a small Italian restaurant that was new, that we were forced to close because the landlord raised our rent almost double and insisted on us signing a five-year lease. We sold off all of our equipment just so we could live. We both found employment, but unfortunately my husband got laid off, and I am the only source of income. We are now living in a small mobile home in which I hate.

I am thankful for what we have, but our children are never allowed to play outside because I do not trust the people where we live. My kids never get to play outside, ride bikes etc. We are looking to purchase a three-bedroom, 1-1/2 bath brick home with a two-car garage and basement in Wayne County, Michigan, preferably in Allen Park, Trenton, East Taylor, or Dearborn Heights.

I am able to make payments, but unable to secure a loan. I have no down payment but will ensure that my payments are made. Please, please if someone could find it in their hearts to help us, you would be helping my family have a normal life. We are only looking at foreclosed homes in the $40,000 range. My husband is very handy and is able to repair. Please help us!

By Dozen12 — On May 18, 2012

I live in Arizona and my home short sold in June 2010, due to a bank error (long story). However, I would like to know when I'll be able to buy a home again. My husband's and my credit scores are in the 700's+. Nothing is bad on on our report or late with the exception of our short sale. We would like a home in the 150k range. Will anyone be willing to give us a mortgage and if so, when can we apply? Please help with info or referrals.

By anon269344 — On May 17, 2012

My husband and I sold our home to a couple and they are paying us monthly for the home. We have a clean and clear title to the house and land. I was wondering if anyone would want to buy my loan so my husband and I could go buy a new house.

By id20500 — On Feb 18, 2012

I am looking for an investor. I'm looking for about $30,000 for a foreclosure. My credit score is over 700. I can't qualify for a conventional mortgage because I'm currently on my soon to be ex husband's mortgage. The home is $26,500. The additional is for repairs. I believe it sold in 2003 for 89,000.

By inneedofhelp — On Jan 24, 2012

We need about a $57,000 loan for re-purchase of our home. It was foreclosed on while trying to work out a modification in May of 2011. Since then, we have been offered by the mortgage company the chance to repurchase it. The house values for about 69-70,000. We have the means to make the payment easily now. We just need a lender. We are in Wyoming.

By bruhf — On Jul 05, 2011

We are a Michigan family with eight kids (six still at home), desperately seeking an individual willing to privately fund a mortgage for us. We are more than happy to discuss family history and situation. We have to leave existing home in less than a month. My wife and daughter found a home in Okemos priced at $150k and we think we can put $15K down.

Thank you for taking the time to read this. If nothing else, please offer a prayer for our guidance. --bryan

By anon186944 — On Jun 16, 2011

I have a 585 credit score. I need a loan.

By anon166193 — On Apr 07, 2011

I have 5 percent equity on a duplex condo which is located in prime neighborhood (Douglaston NY). I have good credit and my wife has poor credit and we are struggling to make mortgage payments.

We are looking for a 5 year or 10 year balloon mortgage amortized over 35 or 40 year to lower mortgage payments while we get stabilized financially. I just received a high opportunity income job.

By anon147402 — On Jan 29, 2011

100 percent upside down on current home, looking at possible foreclosure. Have cash to purchase new home looking for private lender to mortgage about 20 percent. Where do I start for pre-approval of line of credit?

By anon145498 — On Jan 23, 2011

I have $125,000 cash down payment. Good credit. I am looking for a home purchase of maximum $300,000 in Frisco, Texas. I need a private mortgage of $175,000. What should I expect in an interest rate? Thank you!

By anon135381 — On Dec 18, 2010

I have an adjustable rate mortgage and wish to refinance to a fixed rate mortgage. My credit is poor but I have no difficulty making mortgage payments. I have three mortgage-free properties but do not wish to sell any as they are my source of income plus Social Security.

Have tried traditional refinancing route but no success because of my credit score. Looking for a private mortgage for about $230,000.

By anon120931 — On Oct 22, 2010

I need a HUD Graduated Payment Mortgage Loan With Cash out to renovate and do some repairs to the property. With a low interest rate and tax and Insurance added to the monthly payments.

By anon120721 — On Oct 21, 2010

My job relocated to Texas. We sold our $400k home in a short sale. We lost our equity and we didn't make a dime off from the sale. At the time of the sale, we were not aware the short sale affected our credit like a foreclosure. Consequently we cannot qualify for a mortgage loan.

We are desperately seeking a zero down, reasonable interest, mortgage loan to purchase a $350k retirement home in Texas ASAP.

By grhoads72 — On Oct 12, 2010

Looking for a private mortgage on a personal single family residence. ARV is $225,000. Can be bought for $180K or less depending on negotiations. Needs $20K in cosmetics to bring up to FMV. All structural and mechanicals are good. Looking to finance $150K.

I have $30K down money and all required closing costs. Property in Lehigh County / East Penn schools. Prospective buyer is an experienced RE wholesaler.

By Barbara Schemichen — On Jun 16, 2010

I need a home improvement loan for my house assessed at $244,600. I wish to do a quick sale; and need to do some repairs: two carpets, painting, some landscaping and general clean-up. I am recently widowed with no credit/employment history. Please help! Thanks.

By anon71617 — On Mar 19, 2010

I live in bangalore india. I have my own two floor house of 1200 sq ft ground worth of rs10,000,000. I'm looking for private mortgage loan with less interest. Kindly help me out. -joshika

By anon71488 — On Mar 18, 2010

Do you know of a company that will work with someone on a loan to buy a new home in Spring, TX?

My husband and I lost our home in Arizona due to some bad advice from an attorney and this is showing up on my husband's credit report.

We've actually filed against the attorney that steer us wrong to the AZ Bar Disciplinary Unit. My husband has a credit score of 638 and I have a credit score of 673. The only bad thing on my husband's report is the first mortgage and Heloc for the AZ home. Due to AZ economy as well we moved to Texas, where the economy has not been hit so hard.

By anon67103 — On Feb 23, 2010

Looking at a home valued at 200,000 can get for 120,000 cannot qualify for reg financing willing to pay as much as 10 to 12 percent with a seven-year payout.

By gemgal — On Feb 05, 2010

I am seeking a private lender for a NC mortgage. My FICO is currently 614. The home I have found can be purchased for $275,000, and I have up to $55,000 for a down payment (20 percent).

I am unable to qualify for a conventional or FHA mortgage right now due to a previous bankruptcy discharged Sept 2008.

I have been told I would have to wait until after Sept 2010 to qualify. I don't want this property to get away.

By angelheart83 — On Sep 04, 2009

I'm hoping to find a private mortgage. I have "fair" credit but can't obtain a traditional loan because I just entered the workforce less than a year ago. (I was giving my son home-based autism therapy because I didn't approve of any of the resources in the area.) I have stable income now from self-employment. I found a foreclosure that is worth about $146,000 and is on the market for $79,000. If anyone can help me finance this, please let me know.

By anon42509 — On Aug 21, 2009

I found a home 5991 sf log cabin home on 2.8 acres for only $165,000 -- the home was appraised for $323,000. we currently own our home and we can afford this note. our current home will be rented out. we already have renters lined up, we have good credit, but we cannot qualify without selling the current home, something to do with debt to ratio. please can someone finance us so we can have our dream home cheap. (we want to restore the log cabin's natural color and rechink it, so we can sell it for 1/2 million when the market picks up in about 4-5 years or so.)

By anon41468 — On Aug 15, 2009

I am looking for a private mortgage lender to finance a home priced at $210,000.00. My income is between $110 and $120,000.00 annually. My credit is poor. Is this possible to find?

By anon35357 — On Jul 04, 2009

I am looking for a private mortgage lender to help me buy the home I live in. I curently rent (6 years here) and the owner is being foreclosed on and I don't want to move. I can qualify with great credit but have 1/3+ of income as self employed. Looking for a "low doc" loan. Any suggestions?

By Llorna — On Feb 05, 2009

I am currently looking for a private mortgage holder. What do I need to do on my end of things to get started?

By marylinp — On Nov 19, 2008

I need to learn how to foreclose on the buyer of my home. He has not been making payments and I don't know where to begin. Does anyone know a good website where I can learn the process?

By FlaRent2Buy — On May 04, 2008

what are the requirements to sell existing mortgages by mail? Is a mortgage considered a security and does it require registrations and blue skies?

By anon5444 — On Nov 25, 2007

do i need a down payment to get 100% private mortgages?

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