Private Mortgages Lending
If you are struggling to get approved for a conventional mortgage due to being self-employed, retired, having bad credit, or not qualifying under the bank’s lending criteria, contact us to find out about our residential and commercial private mortgage options.
What is a Private Mortgage?
A private mortgage is one that is provided by either a Mortgage Investment Corporation, Syndicate, or an individual rather than a traditional mortgage obtained through a bank. Often, a private mortgage is a last resort after being denied from a bank. However, some clients prefer this instead of borrowing from a bank, as it is less invasive when it comes to getting approved.
Private mortgages do not have the same restrictions that financial institutions do. They offer more leniency and freedom depending on whether the finances are a person or a business. When a private mortgage underwriter is reviewing the file the key factor they want to determine is the property’s value and how much equity will be in the property in the event that the borrower defaults on their mortgage payment and a power of sale is required.
Additionally, private mortgages are intended to be short term loans, ranging from six months to three years. These mortgages are often interest only loans that do not require the borrower to pay down the mortgage principal.
Reasons to use a Private Mortgage Lender
- You want to purchase an unconventional property that a prime lender or bank will not finance.
- You are in need of a quick close and do not want to wait for a long approval process traditional to conventional lenders.
- You have a bad credit history which has resulted in being denied by the bank.
- You only require a short-term loan.
- Your income is non-confirmable which prevents you from being approved for a traditional mortgage.
Lending Criteria for Private Mortgages
In a lot of ways private lenders have much less restrictive guidelines than conventional lenders. However, private lenders do have tighter guidelines on other factors to compensate for the added risk.
- Property type and value: This is arguably the most important factor a private lender will consider when deciding if they want to lend on a property. If the lender decides they like the property, a condition on the approval will be a satisfactory appraisal prior to being approved. The reason for this is so that the lender can ensure they can get their money out of the property in the event the borrower defaults and they are forced to issue a power of sale.
- Income: A borrower’s income can either be confirmable or non-confirmable. If it is confirmable, it can be verified by way of the clients Notice of Assessments. Non-confirmable income, forces the lender to use an estimate of the borrower’s income typical to the job stated in their application.
- Down payment: Private mortgage lenders will loan up to 85% loan-to-value on a property. Meaning, as the borrower, you must put down at least a 15% down payment on the subject property. However, increasing the down payment amount will make you a more appealing applicant to the lender.
- Equity (if refinancing): If the borrower is refinancing their mortgage, some private lenders will allow you to refinancing to 85% loan-to-value. For example, if the property has been appraised at $500,000.00, the lender would allow you to refinance up to $425,000.00. Though some will go to 85% loan-to-value, many private mortgage lenders prefer a maximum loan-to-value of 75%. p