Being a first-time home buyer offers a whole set of challenges on its own. Buyers are not only learning to maneuver through the minefield of finding and successfully purchasing a piece of real estate, they are quickly immersed in the world of mortgage financing. Buying a home is unlike any other purchase and knowing all of the options available can be very helpful. For first time home buyers, a private home loan can make sense.
What Is a Private Home Loan?
Private home loans, sometimes referred to as hard money loans for real estate, are loans that are granted by individual investors or a private company as opposed to a traditional lender like a bank. While there are similarities to traditional mortgages, there are some distinct advantages to hard money loans.
Advantages of Hard Money Loans
There are benefits of private home loans, particularly for first time home buyers. Here are just a few:
First time home buyers can qualify more easily. Hard money loans for real estate rely heavily on the value of the property being purchased as opposed to the applicant’s credit history. This can make it easier for a first-time home buyer to qualify.
It usually requires a smaller down payment. While many traditional loans will require a cash down payment of up to 20%, private loans may be acquired for less. This can be extremely valuable for first time home buyers who may struggle to accumulate such a large down payment.
A private loan requires less paperwork. First time home buyers are often taken back by the amount of paperwork involved in purchasing a home, including getting a traditional mortgage. Traditional mortgages are highly regulated by the government and the associated paperwork is daunting. Private loans are simpler to acquire and require less documentation.
A More Personal Approach
They can take less time to get approved. Because hard money loans are made by private individuals and companies, the approval process is often much quicker than that of a traditional mortgage. While traditional mortgage loans can take weeks or even months to reach final approval, a private real estate loan can be completed in as little as 5 to 10 days. This can shorten much of the anxiety for first time home buyers.
Repayment options are more flexible. Traditional mortgages offer few repayment options and may even penalize borrowers if they pay off the loan early. Hard money loans for real estate are more flexible and don’t include an early repayment penalty.