(ARA) - News headlines continue to detail the struggles homeowners face keeping up with escalating adjustable rate mortgage payments, the collapse of subprime lenders and mounting home foreclosures nationwide. Even without these market troubles, banks offer so many different and confusing mortgage products that it's hard to know what's in the homebuyer's best interest. These days, choosing a mortgage is a daunting experience for first-time homebuyers.
Increasingly, homebuyers are rediscovering an old option for financing their mortgage, one that sidesteps the confusion, paperwork nightmares and threats of skyrocketing variable interest rates: They're taking out a private mortgage from the Bank of Mom and Dad.
A private mortgage is a home loan from a relative, friend or other individual that is secured by real estate. A private mortgage, also called an intra-family mortgage, can provide the structure of a bank mortgage while retaining the flexibility associated with loans between relatives and friends, resulting in a win-win transaction for both the borrower and lender.
Interpersonal loans between relatives are not unusual -- more 10 million individuals in the United States are engaged in interpersonal loans at any given time. Used for home financing, private mortgages provide compelling benefits to both the borrower and lender. The borrower can realize thousands of dollars in interest savings and tax deductions, while the lender can benefit from a monthly income stream and a predictable rate of return that is potentially higher than would be obtained through savings accounts or other fixed income investments. For both, a private mortgage helps keep wealth where it belongs -- in the family.
According to Jim Smith, vice president of CircleLending, a financial services company that is regarded as the market pioneer for designing private mortgage services for the masses private mortgages are used in the same ways as traditional bank loans:
1) Purchase a home: Private loan capital can be used for the entire purchase of the home, the down payment or to supplement bank financing and avoid paying Private Mortgage Insurance (PMI).
2) Refinance a bank mortgage: A private loan can be used to refinance an existing mortgage, lowering the interest rate, eliminating PMI, keeping interest payments within the family or to achieve other favorable terms.
3) Formalize an existing home loan from relatives: Home loans from relatives made in the past can be formalized to take advantage of tax benefits such as interest deductibility and capital gain write-offs
4) Renovate a home: Private loan money can be used in place of a home equity or other higher-cost home improvement loans.
5) Owner-finance a home: A seller can finance the transaction by making a private loan, allowing the buyer to pay all or part of the purchase price over time.
With a private mortgage you don't need to apply, qualify or pass a credit check. You just need to find a relative or friend willing to finance your dream. Typically, a mortgage from a relative or friend is more affordable, more accessible and more patient than most of the borrower's traditional financing options. Courtesy of ARAcontent