If you do not qualify for traditional financing all is not lost, since you may be eligible for an alternative – or private – funding.
Mortgage professionals often have access to private investors who are willing to lend money to BFS individuals looking to obtain mortgages. Although you will pay a higher interest rate – on average about 12% – this route may enable you to acquire funds to purchase a home.
It’s also important to note that there are added fees involved with private funding because the deals involve a higher degree of risk. The combined lender/brokerage fee will depend on the specific deal and the risk it poses, but the figure will be disclosed upfront so you know exactly what you’ll be expected to pay for these services.
Another key point to consider is that private financing is equity-based, meaning that the lender’s decision will be based on a specific piece of real estate. Private lenders want to know that the property is marketable and that they will be able to easily sell it should the mortgage go into foreclosure.
What exactly is alternative financing? Alternative finance refers to forms of finance that are outside the institutional finance system of banks and capital markets. ‘Fintech’ is the ecosystem within alternative finance made up of companies, technology, and processes that aim to improve traditional methods of finance in categories such as:
- Payments and invoicing
- Consumer lending and credit
- Small business lending and credit
- International money transfers
- Equity financing and crowdfunding
- Consumer banking
- Wealth management
- Savings and investments
- Capital markets
- Risk management
- Regulation management
- Cryptocurrency and blockchain