To mortgage a house using private lending, a borrower must secure a private lender, typically an individual or institution, who provides funds in exchange for a mortgage note and deed of trust. The process involves negotiating terms (interest rate, loan amount, repayment period), appraising the property, verifying the borrower’s creditworthiness and assets, and finalizing the closing with legal documentation. Lenders often charge higher interest rates (8-12%) and fees (3-6% of the loan) compared to conventional mortgages due to the non-bank originations.

The private mortgage process is favored by borrowers with poor credit or unique property types, as traditional lenders may reject their applications. Data from the Federal Reserve shows private loans accounted for 2.3% of U.S. residential mortgages in 2022, up from 1.1% in 2019, reflecting rising demand for alternative financing. Higher rates and fees compensate lenders for assuming greater risk, with the average private loan interest rate exceeding conforming mortgages by 2-3 percentage points (National Association of Home Builders, 2023). This structure ensures liquidity for lenders while enabling borrowers to bypass rigid underwriting, though it remains costlier and less scalable than institutional lending. The process balances flexibility with risk, making it a niche but viable option for specific real estate transactions.