What is a Private Mortgage?
With their unique role in the market, private mortgage lenders in Ontario can be a beacon of relief. They fund transactions based on the equity and location of the home, stepping in where institutional lenders and major banks hesitate. This option can be a welcome relief from the tiring, frustrating, and tedious waiting for lengthy approval from traditional lenders.
However, if you need access to funds quickly, don’t qualify for a mortgage from a central bank or institutional lender, have poor credit, or are self-employed, using a private lender in Ontario is a possible solution.
Private mortgage lenders are private entities (business, family, or friend) providing money for home loans. They make a profit by charging interest. While traditional mortgages follow government regulations, private lenders determine the underwriting process and lending terms.
Who Should Consider Private Mortgage Lenders
In some situations, borrowing from a private mortgage lender in Ontario is advantageous. These are:
Property Investors
Traditional lenders carefully examine the property during the underwriting process. They want to ensure it is a sound investment and that the borrower can resell it to recover losses if the loan goes into default. Meeting some lender's requirements can be challenging for property investors interested in flipping depreciated properties.
Instead, qualifying for a private mortgage may be easier because the criteria are less strict.
Those Unable to Qualify Under Traditional Requirements.
Some people are unable to meet the requirements outlined by traditional institutions. These tend to be self-employed, their work history doesn’t quite meet requirements, or they do not have the necessary documentation.
Furthermore, meeting the credit requirements for traditional loans becomes challenging if you have a poor or no credit history. Since private lenders set their eligibility guidelines, borrowers can easily qualify for funding.
Those Seeking to Save Money
Depending on the corporation or individual, private mortgages in Ontario sometimes provide better loan terms than traditional institutions. However, no matter who the private lender is, they still must follow established governmental guidelines.
Self-Employed
Those with non-traditional income sources or who haven’t run a business for at least two years may find securing a loan difficult. Lenders require a two-year minimum business tax return to qualify. These people may have assets or income but cannot provide the details on paper.
Want to Purchase Property from Family Members
Private mortgages in Ontario can be owner-financed. This is when a family member wants to sell the property to someone else. Often, the family member provides the financing terms, allowing the borrower to pay the lender directly.
Advantages of a Private Mortgage Loan
People tend to select traditional institutions to meet their mortgage requirements. Yet, sometimes, they are unable to. Conventional lending isn't always viable for those with poor or no credit, who can’t prove work history, who are self-employed, etc.
The advantages of private mortgages are:
- Less Hassle During Approval than Traditional Banks: Sometimes, the approval process is lengthy. When funding a mortgage using a private lender, the process is expedited. Often, approval is obtained within two days after the brokers apply.
- Debt Consolidation: Some people save money by consolidating high-interest debt at lower private mortgage interest rates in Ontario. It increases cash flow, lowers monthly payments, and allows them to reduce debt quickly.
- No Minimum Credit Score: While private mortgage lenders in Ontario enjoy borrowers with a good credit score, property value and marketability hold a larger interest for them. Frequently, there are a few minimal requirements based on credit score.
- Can Repair Credit: Private mortgages in Ontario can help restore credit by maintaining monthly payments.
- Lack of Minimum Income Qualifications: A private lender is the perfect solution for self-employed people who own their businesses. It is also ideal for those who require a convenient way to track income. These lenders prioritize property instead of revenue.
Choosing the Right Private Lender in Ontario
While there are many benefits to private lending, there are some considerations. Some risks borrowers must consider involve:
- Higher Rates: Since a higher risk is involved, this sometimes comes with higher private mortgage rates in Ontario. Borrowers must know whether the deal is advantageous.
- Approval Based on Property: Traditional mortgages prioritize the borrower’s ability to pay for the mortgage and then the property value. With private lenders, the reverse is true.
- Extra Costs: Broker commissions, lender fees, and legal and administrative expenses quickly cost thousands of dollars. You must know your total costs.
- Short-Term Loan: Loans are generally provided over a one to two-year term. You must secure bank financing at renewal to avoid finding yourself in a cycle of higher-cost, short-term mortgages.
- Foreclosure: Private lenders in Ontario are quicker to initiate a home foreclosure if you default on payments.
- Interest-Only Loan: Some lenders provide interest-only loans. Therefore, monthly payments are based on interest, not on the principal. At the end of the term, borrowers may not be financially ahead, since the complete balance is still outstanding.
Before working with a private lender:
- Discuss the situation with a real estate attorney before signing the contract.
- Discover finder’s and brokerage fees, pre-payment terms, interest rates, and term length.
- If you are going through a mortgage broker, ensure a licensed brokerage represents the private lender.
- Mortgage brokers must declare if a conflict of interest exists.
- Ensure an accredited institution licenses the broker. If the broker is involved beyond transactional management, they must also be licensed as a mortgage administrator.
We Offer a Range of Solutions for all Your Financing Needs
At Canadalend.com, we network with many private investors and lenders who have helped our clients with private mortgage financing. So, ease your financial stress by getting in touch with us right away, and we’ll be more than glad to professionally help you choose the best option available in the market!
At Canadalend.com, we are dedicated to 5-star customer service. Get in touch with us and a lending specialist will help set up an appointment for a free personal consultation. We will help you review your mortgage options and find the solution that fits your needs!
If you cannot secure funding at a traditional institution or are considering borrowing from a private lender, contact us at 1-844-586-0713 or info@canadalend.com. You can also view our site for further information on the lending options we provide.