If you’ve been turned down by a bank, you may still be able to get a private lender mortgage. A good way to find a private lender is through a mortgage broker. Mortgage brokers that focus on private lending will have a network of private lenders that compete for your business. Private lenders offer a variety of different loans including first and second mortgages. This allows borrowers to take out large sums of money at reasonable rates to satisfy their financial needs.
Private lenders have lenient approval criteria and can process mortgages faster than banks. Most private lender mortgages have one-year terms and interest-only monthly payments. For most people, a private mortgage is a short term loan and is replaced with a lower-interest mortgage at a later date. A mortgage from a private lender can be a great source of emergency financing.
Reasons for using a private mortgage lender
There are many reasons to use a private lender including:
- Purchasing a unique property banks can’t finance
- You require a mortgage quickly and can’t wait with the banks
- You have a low credit score
- You only need a mortgage for one year or less
- You have low or self-employed income that is not accepted by banks
For the most part, people go to private lenders after being turned away by other low-cost loan providers.
What are the benefits of using a mortgage broker?
- Mortgage brokers are licensed, trained and regulated by the government
- A mortgage broker can provide you with many different options
- A mortgage broker will shop around with multiple lenders to get the best rate
- The mortgage broker will arrange and explain all the mortgage documentation
A mortgage broker can smoothly walk you through the entire process of getting a private lender mortgage in Hamilton. With a private lender, you can borrow up to 75% of the value of your property. The mortgage is approved on equity and not on credit or income. This means you can get approved even with bad credit or low income.
Approval criteria for a private lender mortgage
Private lenders focus on aspects of the property instead of the borrower. The key factors impacting a lender’s approval decision are the property’s location and debts. Properties in larger cities like Hamilton and Brampton are more attractive to lenders. If a property is in a less desirable region, the lender may require more equity to approve a mortgage. Most private lenders cannot lend in excess of 75% of the value of the property. This means that the value of all mortgages, liens and secured debts, including the proposed mortgage, cannot exceed 75% of the property’s value. In small cities and towns, a lender may only lend up to 60% or 65% of the value of the property. If the property must be sold to pay out debts, it can be sold much more easily in a city with a high demand for homes. In Ontario, if a borrower fails to make mortgage payments, the lender has the right to sell it under power of sale. In a power of sale, the mortgages are paid out from the proceeds of the sale. Mortgages are paid in the order in which they were placed on the property. For this reason, second and third mortgages are considered far riskier than first mortgages. In every case, the lender must be confident that they can recover their investment if the property were to be sold.
Costs involved with a Hamilton private mortgage
The interest rates on a private lender mortgage can range between 7% and 12% depending on the property. This is significantly higher than the 3% to 4.5% currently charged by banks. Typically you can also expect to pay a lender fee between 1.5% to 3% and broker fees between 1% and 3%. There may also be administrative fees and an appraisal fee which must be paid up front. All other fees are paid from the proceeds of the mortgage and are included in the registered amount.