Alternative mortgages are an alternative to traditional mortgage options. They can be a good choice for people with unique financial situations or who want to make a home purchase unconventionally. Alternative mortgages can also be useful for people who have had financial struggles in the past and are looking to rebuild their credit.
Basically, there are many different types of alternative mortgages. But private lenders all share the same basic idea, which is to provide home buyers with financial options that traditional lenders don’t provide. The common types of alternative mortgages are private mortgages, equity-sharing mortgages, land trusts, and more.
Private Mortgages
A private mortgage is a loan directly from one person to another. It’s also known as an “unsecured” loan because it isn’t backed by any collateral.
Private mortgage lenders offer loans for large purchases such as homes, boats, or planes. Private mortgages are a type of consumer loan, meaning the lender is not generally licensed or regulated by the government. Interest rates are usually higher for consumer loans because there is no collateral and thus no protection for the lender in case the borrower defaults on the loan.
Equity-Sharing Mortgages
The other form of alternative mortgage is an equity-sharing mortgage. In this type of alternative mortgage, homeowners take out a conventional mortgage with a bank or other lender and then enter into an equity-sharing agreement with investors who pay off part of the homeowner’s mortgage in exchange for part ownership of the home.
B-Lender Mortgages
This is a type of alternative loan that comes from a bank that isn’t regulated by the federal government. Since these B-lenders are not subject to the same rules as banks, they don’t have to adhere to the same underwriting guidelines, which can make them more willing to lend money to people with low credit scores or who have been unemployed for a long period of time. They may also be easier to qualify for if you have a lot of debt—a negative factor when you’re looking at a conventional mortgage, which limits your debt-to-income ratio. If your situation doesn’t fit into the typical box, it’s important to look into whether an alternative mortgage is right for you.
Bridge Financing
This alternative mortgage is designed for those moving from one home to another. The borrower will have a temporary loan until the new property is purchased, and then the loan will be paid off. Bridge financing loans can also be used when the borrower has two mortgages but wants to refinance one. This type of mortgage is ideal because it allows the borrower to avoid paying two loans at once, which saves money in the long run.
Reverse Mortgages
A reverse mortgage is a type of loan that allows you to access the equity in your home without having to make payments during the time in which you use the loan. The loan is repaid upon the sale or transfer of the property and sometimes at a higher interest rate during that time period.
Key Takeaways
Many people seek alternative mortgages because of their experience with the recent housing market. Alternative mortgages may be ideal for those interested in getting out from underneath their debt or those looking for extra cash in their monthly budget. There are many types of these types of loans, and it is crucial to understand each one to determine if an alternative mortgage can help you. You can speak to mortgage lenders if you are wondering how many mortgages you can have and to learn more about which type of mortgage could benefit you more.
