Mortgage-Matters

Private mortgage options

Do you think of private mortgages as a last resort; the very last option to consider should you be unable to obtain mortgage financing through a traditional lender?

That is the popular opinion, but private lenders have been filling the void left by our tighter lending rules and with the new mortgage stress test now in play, the role of private lenders will become more important.

There are several opportunities where you might consider private financing and funds are available for first, second or even third mortgages.

Private lenders are different from banks or other mortgage lenders with the primary difference being the source of funding.

Private lenders get their funds through individual investors or groups of investors and they are considered a short-term investment for the investors. That is why private financing is usually only available for one- to two-year terms with the expectation that the borrower will be able to pay off the mortgage at the end of the term.

Unlike traditional financing, a private mortgage lender is more concerned with the property as this is the security they have should there be a default in payments by the borrower.

The primary concerns are the condition of the property, location, the borrower’s equity in the property and how easy would it be to sell if the borrower gets in trouble. That is why it is difficult to find private mortgage options for rural or unusual properties.

Another reason that private lending is becoming more popular is the tightening of mortgage rules for self-employed and commission income borrowers.

Self-employed borrowers with more than three years in business and those who have commission based earnings are now required to provide traditional proof of income to qualify for a mortgage. If you aren’t showing a reasonable income for your profession, then there could be a challenge in obtaining financing from institutional lenders.

One sector of the market where we are seeing an increase in this type of mortgage is with real estate investors. Some property investors are getting tired of dealing with the bank’s restrictive lending policies and are opting to go to private lenders regardless of the higher costs.

Real estate investors now know that there is a requirement for a minimum 20 per cent down payment on non-owner occupied investment property purchases.

Underwriting policies for qualifying have tightened and a reduced the amount of rental income is now allowed for qualifying. The demand for private financing has increased for smaller investment properties used to generate rental income as they may no longer fit within the banks standard guidelines.

You may need to consolidate debt to improve your credit score so you can qualify for a mortgage at a prime lender in the future.

A private second mortgage can also be a good way to consolidate debt and although the rates are higher than a first mortgage, the rates are still often lower than high interest credit cards, car loan payments or even unsecured lines of credit.

The higher your credit score most likely the rate will be lower. Also the more equity you have in your property then the higher chance of getting approved for a second private mortgage.

Have you been turned down by your bank? Then you might also consider a private mortgage option as a temporary solution until you repair your credit or fix the reason you were declined at a prime lender.

Just know that there are options available beyond traditional lenders and this is a growing segment of the mortgage market providing alternate solutions for mortgage financing.

If you would like more information on private or alternative mortgage lender options, please call me at 888-561-2679 or email [email protected].



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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com



The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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