Working with a Private Mortgage Lender
If you have come to the decision that a private mortgage is the right choice for you, the next step is finding a private lender. To help you choose the right private lender for you, we have prepared a check list to assist borrower below.
Ask questions. Make sure you understand all the terms of your mortgage. Discuss scenarios with your broker or representative to make sure you are getting the most favourable terms for you unique circumstances. All aspects a private mortgage are open for negotiation. Fees, rates, open, closed, prepayment options, interest only or amortizing, term length and renewal options are a good place to start.
Know what you are getting into. Do you research, to ensure the partnership will be the best fit for you and your financial needs. Have a good understanding of your finances and know what you’re able to afford. Private mortgages are more expensive than conventional mortgages. Make sure you are prepared and able to make payments.
Read all paperwork. Every loan comes with fees and expenses like appraisals, regardless of whether it is from a conventional or private lender. You owe it to yourself to be educated about everything before you make your decision. All lenders whether they are private or institutional have their own terms and requirements. Make sure to read everything provided to you. Depending on your province, there will be a variety of disclosure documents that your representative will prepare for you to review and sign. If there is anything you don’t understand, ask questions or speak to your notary or lawyer.
How much private mortgage financing can I get against my property?
As is with all financing, this question depends on the value of the property and the borrower’s current financial picture. A unique aspect of the private mortgage is the focus on an exit strategy. Few borrowers want or need to be in a private mortgage product for the long term. These loans are typically short terms, with 1 year being the most common term. A private mortgage lender will want to know what the borrower’s exit strategy is. Are they intending to refinance with a conventional lender, sell the property or have funds coming from elsewhere to repay the loan at the end of the term.
Typically, private mortgages registered in first position are provided up to a loan to value of 75% (lower for high value properties).
Second mortgages, which have higher rates, once again depending on the property and the details on the application financing can be in some cases can be arranged up to 80% of the property’s fair market value. In some cases, it is possible to find a lender that will go above 80% loan to value; however, the price on these loans can be costly. The average for second mortgages is approximately 75%.
Many people think that private mortgage lenders are prepared to take on any type of risk up to an including lending against 100% of the property value but that is usually never the case.
Is a private mortgage available if I have bad credit or no credit?
Every private lender is going to make their own decision regarding a borrower’s credit rating and history as it relates to their decision to lend. In some cases, when credit is damaged a private lender may charge higher rates and/or provide lower loan to value amounts. However, private mortgage lenders are not like conventional lenders and underwrite mortgages based on different requirements. For that reason, even very low credit ratings can potentially be financed, but could be at higher rates and lower leverage.
Private mortgages can be a solution for individuals who have been bankrupt, done a consumer proposal, have collections outstanding, or are facing foreclosure/power of sale.
Many borrowers use a second mortgage to do a debt consolidation – they borrow money against their property to pay off other debts and have one lower monthly payment.
The application process
The difference between private mortgage lending and conventional lending is clearly visible in the application process. Private lending makes it very easy for borrows to apply for loans. Most conduct the process online using online application that are simple to complete and may require less documents than what a conventional lender would require.
When dealing with a bank, there are often long lists of requirements that must be met in order to qualify for a loan. And when you fall short on any of these requirements, your chances of receiving the loan is put at risk. Private mortgage lenders, however, evaluate loans differently. This solution works well, particularly if your credit isn’t the best, or you are self-employed. This doesn’t mean that every borrower will be approved, but your chances of being approved are higher.
How long does it take to get a private mortgage?
With private mortgages lenders, the turnaround time for your application being approved is much faster than that with a bank. In most cases, as long as you have provided the required information for the lender to make a decision you will receive a decision on your application within a few days and funding can take place shortly after that.
This can be extremely helpful when you find yourself needing funds and you only have a short amount of time to put in an offer and close a deal.
Here are examples of some of the information required by private mortgage lenders when reviewing applications for loans:
- Credit History
- Proof of Income or Assets
Unlike a conventional lender process that is strict and heavily document focused, with private lenders you can expect the opportunity to present your story to illustrate your particular set of circumstances and what the funds are needed for.
Another great benefit of getting a private mortgage through a private lender is that the funds can be available extremely quickly which enables the borrower to use this source of financing for paying emergency bills, debt consolidation, home renovation or tax and mortgage arrears in case of power of sale.
Less red tape leads to a faster process. Private lenders tend to get the money in your hands much faster than conventional banks.
Private mortgage lenders have much to offer. They have less stringent criteria for lending leading to more flexibility for your unique situation. They are much better suited for unconventional borrowers who need funds quickly.