With tighter mortgage rules/regulations, more and more Canadians have been turning to private lenders to get home financing for their new home purchase but also to refinance their existing homes.
The traditional lenders like banks have fixed set of rules and require substantial documentation before approving borrowers for their mortgage. They also requires borrower to stress test at a higher mortgage interest rate to determine if he/she can afford payments if the interest rises in future. Not all prospective buyers can fulfill this criteria and thus their only option is to turn to private lenders. Private lenders have liberal criteria as compared to banks and paperwork/documentation involved is also less demanding.
Common situations when private lenders can come handy:
People who are self-employed or have irregular income – Self-employed individual and people who do not have a steady source of income and their income varies drastically from month to month often find it very difficult to get mortgage from traditional lenders.
People with foreign income – People with foreign income generally fail to qualify for mortgage from the traditional sources as it is not very easy to verify foreign income.
People with poor credit – People with poor credit find it very difficult to arrange for a mortgage from bank as they do not fulfill their criteria and are denied mortgage.
People looking to buy investment properties – People who like to invest in properties often have difficulty qualifying for a mortgage with traditional lenders because they cannot meet traditional lenders debt ratios.
Most private mortgage loans are short term loans ranging from 6 months to 2 years. Private lenders tends to charge higher interest rate and fees than traditional lenders as they are taking on higher risks with borrowers. Depending upon the risk involved in the mortgage the interest rate can range from few percentage points above bank rate to even double-digit rates.
When coordinating a mortgage loan through a mortgage broker that secures a loan from a traditional lender, broker fees are paid by the lender but in case of a private mortgage, the borrower is also responsible for covering these fees instead. Despite the higher interest rates and fees that come along with a private mortgage, many borrowers are choosing private mortgages as a good alternative source of funding to fulfill their financing needs.
Should You Consider a Private Mortgage?
If you have already tried to apply for a traditional mortgage and was turned away by traditional lenders, let us know. ValuePlus mortgage team pride ourselves on providing the highest level of customer service when finding the right private lender and in securing best rate possible.