So, what is a Private Mortgage? It is a Mortgage made, in this case, to a real estate investor and is secured (collateralized) by real estate.
We are not talking about high Mortgage-To-Value (LTV) ratios the banks and savings and Mortgage institutions make on homes. We typically employ low LTV ratios to our Private, also called Hard Money Lenders Arizona, to increase security of the Mortgage. Standard LTV ratios are usually under 75% of the value of the property securing the Mortgage and frequently as low as 60%. This means additional security on the investment.
For example, if a property is valued at $100,000, Hard Money Lenders Arizona would usually not Mortgage more than $75,000 dollars on the property. That’s a 75% Mortgage-to-value ratio. This approach taken by private money lenders Arizona is obviously a much safer approach from that taken by conventional lenders. These banks get into trouble because they make Mortgages at a 90%, 95%, or even 100% Mortgage-to-value ratio leaving them no equity for transfer costs, if they are ever forced into a position where they have to take back the collateral property. It is in the best interest of the hard money lenders Arizona to minimize risk and maximize return and this is why private Mortgages should not be made without a 25%+ safety net.