Private Lender Mortgage Rates in 2024: What To Know

If you don’t qualify for a mortgage loan from a traditional lender, like a bank or credit union, don’t give up. You might still be able to get the financing you need from a private source. Indeed, private mortgage loans could be just the way to purchase a great piece of real estate.

You should pay attention to private lender mortgage rates before signing any dotted lines. Let’s break down private lender mortgage rates in 2024 in more detail.

What Are Private Mortgage Lenders?

A private mortgage lender is any private entity that lends money to purchase a home or real estate. Like traditional lenders, private mortgage lenders earn profits based on the interest of the loans they underwrite.

A private mortgage lender can be a family member, a friend, a business, an individual investor or a pool of investors. If you can't secure a mortgage loan from a traditional source, like a popular bank or credit union, a private loan could be an alternative means to get the financing you need.

How Do Private Mortgage Lenders Differ From Traditional Lenders?

There are several differences between private mortgage lenders and traditional lenders. For example:

  • Private mortgage lenders don’t have to follow the borrowing guidelines set out by the federal government or any government-sponsored entities, like Fannie Mae and Freddie Mac. Instead, private mortgage lenders have their own underwriting processes and lending criteria.
  • Private mortgage lenders aren’t federally regulated. As a result, borrowers don’t have the same protections when working with a private lender compared to working with a traditional lender.
  • Private mortgage lenders usually must register with the state where they operate or underwrite loans.

Private mortgage lenders make their own rules regarding who they approve for borrowing and their loan terms. This does mean that even if you don't qualify for a traditional mortgage, you might still be eligible for a mortgage from a private lender.

You might consider working with a private mortgage lender if:

  • You don't meet traditional mortgage borrowing requirements (e.g., credit score and income documentation).
  • You want to purchase property for development, such as a piece of vacant land
  • You need to move quickly on a transaction and need more time to qualify for traditional, long-term financing

What Factors Influence Private Lender Mortgage Rates?

Like traditional lenders, private mortgage lenders only offer loan instruments if borrowers meet their qualifications and requirements. 

Many factors can impact the interest rates a private lender offers you, like:

  • Loan-to-value (LTV): The loan-to-value ratio is a metric used by private lenders to determine their exposure to risk. A higher LTV indicates that the borrower is financing a larger portion of the property, which creates a higher risk of default. Private lenders usually charge higher interest rates for higher LTV loans in order to compensate for the elevated risk of default. The opposite is also true: A lower LTV loan has a lower risk of default and therefore has access to lower interest rates. 
  • Asset Type: Some asset types are riskier than others. For example, vacant land is often associated with higher risk because in the event the borrower defaults, the lender is left with an asset that does not generate any income and will have more difficulty selling the vacant land. To mitigate these risks, most private lenders will require a larger down payment, an interest reserve, and/or charge a higher interest rate for vacant land compared to a completed asset. 
  • Fixed or Variable Rate: Many private lenders offer fixed and variable rate options. A fixed rate means that the rate will remain the same for the life of the loan. A variable rate, also known as an adjustable or floating rate, is tied to a benchmark interest rate, such as Secured Overnight Financing Rate (SOFR) and will fluctuate based on market conditions. Lender’s bear less risk with a variable rate loan compared to a fixed rate loan and will often offer a lower initial interest rate on variable rate loans. 

What Are the Pros and Cons of a Private Lender Mortgage?

There are several advantages and potential disadvantages to going with a private lender mortgage.

Pros of Private Mortgages 

Some key advantages of a private mortgage include the following:

  • Private mortgages are better suited for investors with complex ownership structures, foreign nationals, and high-net-worth individuals. 
  • Private loans also have shorter approval processes, so they are often ideal choices for short-term financing needs until permanent financing can be secured.
  • Private loans cater to unconventional real estate transactions such as investing in vacant land, a non-warrantable condo, or a multimillion dollar property. 

Cons of Private Mortgages 

Private mortgages can have some downsides as well, such as:

  • Private loans are considered commercial loans or business purpose loans. This means that they can only be used to finance non-owner occupied properties. In other words, you won’t be able to use a private loan to finance a primary home or vacation home. 
  • Private lenders charge higher interest rates than a traditional mortgage lender. 
  • Private loans are short-term loans ranging from 12-36 months. Making it imperative to have an exit plan on how you plan to repay the loan before signing on any dotted line. 

How Have Private Lender Mortgage Rates Changed in 2024?

In the past two years, the Federal Reserve has taken aggressive measures to get inflation under control by imposing significant rate hikes, which had a far-reaching impact on the global economy. The Fed's have not raised rates since July 2023, but the benchmark rate still remains at a 23-year high as of May 2024. As a result of these rate hikes in the US, other benchmark interest rates haven't come down either, such as SOFR. It is, therefore, not unexpected that private loan rates, which are tied to SOFR, have also maintained their elevated levels. 

Current Private Lending Rates

Currently, private financing rates hover anywhere between 10.5% and 12%. The type of loan and its terms, asset type and quality, location, and other factors can impact the overall rate you’ll receive from a lender.

If you apply for a private mortgage loan for a vacant land parcel or investment property that needs to be developed, your interest rate will likely be closer to 12%.

The Impact of Economic Trends on Private Mortgage Rates

Private mortgage rates are typically higher than the standard rates offered by government-backed banks and credit unions. That’s because private mortgage lenders usually take on riskier loans – in exchange, they charge more interest to compensate for higher risk exposure. 

Private loan rates can also change as economic trends become more positive or negative. A healthier economy usually leads to lower rates and vice versa. 

How Can Borrowers Navigate the Approval Process With Private Lenders?

If you want to get approved with a private lender, you can undertake certain steps to maximize your approval chances and improve your bargaining position.

Prepare for the Private Mortgage Loan Process

Private mortgage loans are designed to be more streamlined and require far less documentation than a traditional loan. That said, being able to get funding in a matter of a few days is dependent on how quickly the lender’s processing team receives your documents. Your lender should be able to provide a document checklist to make gathering documents easier. 

Review the Role of Mortgage Brokers in Securing Private Loans

Don’t hesitate to reach out to a mortgage broker if necessary. Mortgage brokers can help you explore several private mortgage options to help save you time and money. Keep in mind however that mortgage brokers do charge a fee for their services. 

Understand Lender Fees and Repayment Structures

Remember that lender fees and repayment structures can vary from private to private lenders. A reputable lender will outline all of their fees, including if there is any fee to paying off the loan early, also known as a pre-payment penalty. 

What Loans Do Private Lenders Offer, and What Are the Rates?

Private lenders offer a variety of different loan instruments with variable rates. For example, Vaster offers:

  • Blanket loans for purchasing multiple properties.
  • Cash-out loans for properties that are free and clear.
  • Loans for pre-construction condos, non-warrantable condos, microunits, or condotels.
  • Super jumbo loans for multi-million dollar real estate purchases exceeding $10 million
  • Loans for foreign national investors.
  • Land loans for spec home developers and custom home developers.
  • NO-DSCR loans for rental property investors.

Private Mortgage Loans for Real Estate Investors

A blanket or jumbo loan could be ideal if you’re looking for a real estate investment loan. However, private financing may also help you get the capital you need to execute on your investment strategy more efficiently.

Short-term Loans and Private Financing for Cash-Out Refinancing

Similarly, private financing can be an excellent solution to tap into the equity of your property and use the cash proceeds to invest in new ventures, pay off existing debt, or make improvements on the property. 

The Bottom Line

Private mortgage lenders offer an attractive financing solution for investors that want to compete with cash buyers or to tap into the equity of their existing real estate portfolio. To learn more about how private lending could benefit your real estate investment in 2023, consider applying with Vaster. Whether you want to purchase or refinance, Vaster offers flexible solutions for diverse financing needs.


Should You Borrow From Private Mortgage Lenders? | Forbes Advisor

Loan-to-Value (LTV) Ratio: What It Is, How to Calculate, Example | Investopedia

Mortgage Broker: Definition, How They Work, and Responsibilities | Investopedia

What Is a Private Mortgage? | NerdWallet Canada

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