Working With Private Mortgage Lenders Canada – A Complete Guide
How To Find Best Private Mortgage Lenders
Are you looking for a private mortgage lender?
You can find a list of private mortgage lenders from friends, real estate agents, or other industry professionals. You can also search online for “private lenders Canada“.
Whichever approach is the most convenient to you, when considering a private lender, look for critical benefits such as funding turn-around time, low interest rates, easy application, low credit score requirements, and fast closing times.
Ultimately, you want to work with a lender you can trust.
Listed below are some tips to help you find a private lender Canada.
Consider lenders who have a history of funding the same property type as yours, such as:
Consider lenders who have funding experience for the same purpose as your situation, such as:
|Consider how much loan you need in comparison to the property valuation. Most lenders can lend up to 85% loan-to-value (LTV).|
|Consider the proposed solutions that are benefiting you in the short-term and long-term. Do not sign up with a private lender that uses hard sell tactics to pressurize you to a contract that does not help you to be in a better situation after the mortgage Term ended.|
|Always find an exit strategy before signing any private mortgage solution. This exit strategy is your solution to return to normal and obtain mortgage financing through traditional lenders if you wish.|
Private Mortgage Lenders Have Flexible Terms
The terms and conditions offered by private mortgage lenders are often more flexible than those of traditional banks.
Private lenders aren’t as concerned about the borrower’s credit score or debt-to-income ratio as banks are. Instead, they look at the details provided on the loan application to decide on the reasonability of the entire situation and the property value.
The benefit to private lenders is that they can underwrite based on internal lending guidelines that are more flexible than the traditional banks. In return, private mortgage lenders may require higher interest rates than banks.
Private Mortgage Lenders Require A Minimum Down Payment
In addition to flexible terms, private mortgage lenders often require a minimum down payment of 20% of the purchase price or property’s present value. This minimum down payment amount provides lenders with some cushion to offset the risks they take by lending money to the borrowers that traditional banks would have declined.
Private Mortgage Lenders Suitable for Borrowers with Bruised Credit Score
Private mortgages are also an excellent option for those with bruised credit scores due to loss of job, accruing personal debts, tax arrears and other life events that turn a normal life upside down.
Private mortgage lenders are an excellent option for people with bad credit to have a second chance to become debt-free sooner or return to the traditional lenders. So, when deciding between private mortgage lenders, consider that private loans are meant to be a short-term solution to bring you back to normal lending solutions from traditional banks.
Whether you’re looking for flexible lending terms or short-term financial stability, private mortgage lenders have a range of private mortgage solutions that suit your needs.
Private Mortgage Lenders Charge Lender Fees
In some provinces, private mortgage lenders are not permitted to advertise their services to the public directly. That means they must work through licensed mortgage brokers.
Mortgage brokers charge a broker fee, which usually matches the lender’s fees. Generally, a 2% fee means the mortgage lender will also charge you a broker fee. These fees are included in the closing cost, which is the total processing cost at the Closing Day to register the mortgage, legal fee, broker fee, lender fee, title insurance fee, and other expenses that a real estate lawyer will stipulate on the Statement of Adjustment document.
Most private mortgage lenders allow the closing cost to be added to the total mortgage amount and amortized.
A larger down payment or available equity in the property usually means lower interest rates.
One advantage of private mortgage lenders is that they are faster and have more flexible lending guidelines when underwriting a mortgage loan application.
FAQ on Private Mortgage Lenders
What are private lenders for mortgages?
Private lenders for mortgages refer to investors who lend money for mortgages.
Common examples include hard money lenders, private investors, and people who have cashed out their RRSP or TFSA and now wish to lend their money for other people’s mortgages.
There are many reasons why someone might choose to utilize private lenders for mortgages. Generally, borrowers find private mortgage lenders because they can get a second opinion and be approved for a mortgage even though their financial situation is considered a red flag according to the lending guidelines by traditional lenders.
A good mortgage broker can be beneficial in this situation!
What is the difference between a private lender and a bank?
A bank is a financial institution which offers financial services to businesses and individuals. In addition to taking deposits, banks also provide loans, accept payments for services, and offer credit cards.
Banks charge fees for these services and pay interest on money kept in deposit accounts.
Banks also create and distribute currency in the form of cash and checks.
Banks provide financial services to individuals, corporations and governments.
Private lenders refer to any lenders that are not a bank. These lenders include individual private lenders and mortgage investment corporations.
Private lenders usually charge higher interest rates than traditional banks because they take on additional risks by lending to borrowers declined by the conventional banks due to their strict lending guidelines.
Is it better to go through a private lender or bank?
It all depends on each person’s credit score and individual circumstances. Taking a loan or a mortgage is what most individuals do when they want to buy a real estate property.
Banks are usually the better choice if you have a good credit score. But if you have a low credit score, the private lender is probably your best option for the short term.
Banks tend to have more stringent requirements for getting a loan. For example, they’ll give you money for a house, but you’ll need a stable income and good credit.
Private lenders are more flexible in their lending guidelines yet charge higher interest rates and fees.
The best option is to compare the two and figure out what would work better for you.
Is it safer to go through a private lender or bank?
Getting a mortgage from private lenders is generally safe if you know whom you are dealing with.
The private lenders can be either individuals or companies. The former tend to be much riskier since they do not have any reputation or a business to protect.
This means that borrowers must be very careful when choosing a private lender. You are better off working with a company.
Suppose a private lender is a legitimate and established company that a provincial Crown agency can verify, such as the Financial Services Regulatory Authority of Ontario (FSRA), and the mortgage is administrated through a licensed mortgage administrator. In that case, the private lender is a legitimate source to take a mortgage loan.
More From Other Categories
A self-employed construction worker injured his foot while working and was unable to work for one year due to the injury. With the reduced income, while recovering from the injury, he needed a solution that will pay off his personal debts and tax arrears completely. He needed a solution from alternative lenders who will lend him a loan based on the equity in the house so can pay off the personal debts and tax arrears until he is fully recovered and back to full his previous level of income as a self-employed construction worker.
A recently divorced couple was looking to refinance to pay out all of their mounting debts, including an existing first and second mortgage and significant credit card debt.
After meeting various bank representatives to no avail, the couple found their solution from one of the lenders of the Canadian Private Mortgage marketplace.
This couple was able to proceed with their divorce resolution amicably and the wife will assume ownership of the property with the mounting debts paid off and come out with a better cash flow.
The husband works as a self-employed contractor and his wife has been running a home-based daycare business. They needed funding to purchase the house and set aside some renovation budget to rework the interior of their new home. But, their existing lender backed out on the closing day. This couple was left scrambling to find an alternative lender to close the deal.