Is a Private Mortgage Right for You?
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Private Lenders Becoming More Popular
Not all mortgages come from Canada’s big banks and lending institutions. In fact, a growing number of Canadian homebuyers are turning to private lenders to help them realize their dream of home ownership.
Why? Since 2008, the federal government has initiated a large number of stricter lending rules for government-backed insured mortgages. Some of the changes include reducing the maximum amortization period and increasing the minimum needed for a down payment from zero to five percent of the purchase price.
If the purchase price of a home is over $500,000, the down payment rules are even tougher. Buyers still need to put down at least five percent on the first $500,000, but also need to put down at least 10% down on the portion of a home that costs more than $500,000. Homes that cost more than $1.0 million still require a 20% down payment.
All of this has made it more difficult for first-time homebuyers to get onto the property ladder.
Enter private mortgage lenders. What’s a private mortgage? With a private mortgage you don’t borrow money from a bank or trust; you borrow from another person or business. Thanks to tighter lending rules, more and more Canadians are turning to private lenders.
While the number of mortgages given out by private lenders in Canada remains small at roughly four to five percent of the Canadian mortgage market, the number is growing. During the 2008/2009 recession, private lenders accounted for just 0.8% of overall mortgages.
The fact of the matter is that private lenders play an important part in Canada’s real estate landscape. In 2014, the Canada Mortgage and Housing Corporation (CMHC) discontinued mortgage for those who are self-employed without third-party income validation. With more than 15% of the workforce being self-employed, this was a huge hit to large number of potential homebuyers.
Private mortgage lenders also provide options for first-time homebuyers who are saddled with debt, have bad credit, are divorced, have an illness, have lost a job, owe back taxes, or are non-residents.
Private mortgage lenders in Canada also provide options for potential homebuyers who do not have a long enough income record, or business owners who, for tax purposes, take home a big enough salary.
While private lenders charge a higher interest rate than traditional banks do, they help borrowers rebuild their credit rating so they can eventually go to other lenders and get better rates.
7 Benefits of Using a Private Mortgage Lender
Less Red Tape
If you go with one of Canada’s bigger banks, be prepared to roll up your sleeves. That’s because tighter lending rules means more paperwork for homebuyers. Proof of income documents will be more difficult for those who are self-employed. Or, you may even run a profitable, growing business, but you may not have all the documentation the banks need. Private mortgage lenders streamline the process. Explain your situation to the licensed, independent broker, and they can help you determine what kind of loan you qualify for—right on the spot.
Mortgage Flexibility
Big banks need to adhere to strict lending rules making it more and more difficult for Canadian homebuyers to qualify for a mortgage. Independent mortgage brokers on the other hand are not bound by the same rules and have more flexibility in finding the right loan or financial product for their clients.
Good Mortgage Rates
A private mortgage broker is an expert in mortgages and has a comprehensive understanding of the ever-changing mortgage rate environment. Unlike the banks, which just promote their own products, an independent private mortgage broker can have access to hundreds of different lenders. This means the private mortgage broker can get you the best financial products available at the best rates.
Easy Mortgage Pre-Approvals
Private mortgage brokers are in the business of finding lenders for borrowers who have been turned away from the big banks. And they want to make the mortgage pre-approval process as easy as possible. Because of their independence and streamlined structure, private mortgage brokers have more power and authority for approve or to adjust their loan package.
Higher Lending Risk Tolerance
Homebuyers like private mortgage lenders because they have a higher tolerance for risk than institutional banks do. They know lenders who specialize in helping find mortgages for those with bad credit, are self-employed, or have recently filed for bankruptcy.
Real-Time Lending Speed
With interest rates near record lows and a competitive housing market, timing is of the essence when getting a mortgage or loan. Standing in line at a traditional bank, filing out all the forms, and waiting for approval means you could miss out on your dream home. Private mortgage lenders on the other hand have less red tape, a streamlined process, and access to capital in real time. Because of their personal service, private mortgage brokers can get you pre-approved for a loan that suits your financial and lifestyle needs in 24 -hours or less.
Purchasing Advice
Buying a property is a big step. And there is a lot to consider before you sign on the dotted line. That’s where a private mortgage broker can help. Not only do private mortgage brokers understand mortgages, they also understand the real estate market in your area. They may be able to offer you advice on your property and explain the pros and cons of the purchasing process.
Canadalend.com: The Private Lender Specialists
Just like the big banks, when it comes to private lenders, it’s important to shop around. The best way to find the best private mortgage is to talk to a licensed, independent agent at Canadalend.com .
At Canadalend.com, we network with a large number of private lenders who have helped our clients with private mortgages. If you’ve been turned down by one of the big banks, contact Canadalend.com today to set up a free consultation, or apply online and one of our private mortgage specialists will help you set up an appointment at your earliest convenience.
