Private mortgages are more popular now among Canadians. This is because the rules and the criteria to get approved by a traditional lender are getting more and more strict, so Canadians are looking into other options to get the money that they need.
Private mortgages follow similar rules as the ones used in banks, for example. However, private mortgages are more flexible regarding financial scenarios. In some situations, the borrower can not be classified in predefined standards that most traditional lenders need to obey. Those standards are already pre-defined and it makes hard for large institutions to adapt to the client’s financial situations if they don’t pre-qualify. On the other hand, private lenders are able to make exceptions and adapt for their client’s unique needs.
Canadians are looking for private mortgages not only for mortgage, but also for refinancing needs. Clients also might be looking into increasing their home equity by renovation their basement, for example. That is another scenario that might not fit the traditional lender guidelines.
Private Lending Scenarios
A traditional bank will ask you for a lot of paper work in order to check your ability to repay the loan. Some borrowers will be automatically not qualified, because they won’t have the necessary documents. For example, self-employed clients won’t have T4 forms and recurring paystubs, which are necessary to apply with traditional lenders.
Another examples where clients could be automatically disqualified are: non-residents, low credit score, second mortgages, rental investment properties, multifamily properties, construction financing.
Here is a common scenario that private lenders take into consideration: a client is building a new house, and it is almost complete, and this client will need some extra money in order to finish the house. The bank, which already approved the mortgage, has turned down this client’s request for additional funds. In this case, the client will consider a private lender to get the funds he needs.
Private lending requirements
Most of private lenders are experts in a determined market niche which they feel more comfortable lending. For example, a private lender may only be willing to lend money for construction financing scenarios, because they might have previously experience with home construction. Because of that, the lender feels more comfortable in an environment he had experience with, other than lend money to a second mortgage on residential homes, for example. Another type of restriction from private lenders is geographical. Some private lenders might restrict their lending policy and only include big cities, and exempt smaller towns, for example.
Regarding qualification criteria, private lenders are much more flexible than traditional lenders. A client from a private lender will face less documentation and paperwork compared to banks. Clients will also have less restrictions and having a low credit score is not critical for a private lender, as long as the client can prove that he has the means to pay back the mortgage. With that in mind, the borrower should be able to indicate how he is going to pay the loan term and what is his strategy.
Private lenders are taking a higher risk when lending money for someone who doesn’t qualify with a traditional lender. For that reason, they will charge a higher interest rate than a conventional lender. The interest rates will vary among the private lenders and can range from one to two-digit rates. The rates depend on the level of the risk associate with the loan.
If you are looking to refinance or purchase a home over the next few months, contact us today at 877-296-2696 or email us at email@example.com.