Ultimate Guide To Using Private Mortgage Lenders
Canada's real estate boom can be hard to navigate. Banks and mortgage brokers are commonplace - but not many Canadians know how private mortgage lenders can help.
This post will show you how to navigate the complex world of private mortgage lending. You'll discover the advantages, understand potential risks, see how they stack up against traditional banks and even get insider tips on securing a loan from lenders like us at Keystone Capital.
Understanding Private Mortgages
Private mortgage lenders are an alternative to traditional banks, also known as "non-bank lenders". Unlike traditional banks or monoline lenders, private lenders can offer more flexible lending criteria and approval processes.
A private lender, for example, might be an individual investor or in the case of Keystone Capital a company that pools together multiple investors. This means they have more flexibility when it comes to lending criteria and approval processes, and use their own funds for loans rather than using deposits like most banks do.
The private mortgage market in Canada has been growing rapidly in recent years due to regulation and rising rates making it more difficult to qualify for a mortgage.
When You Should Use A Private Lender
There's two main factors when looking at who should be using private lenders:1. Equity - which is critical and this serves as collateral to mitigate risk for both you and the lender. 2. Exit Strategy - which is you (the borrowers) plan to repay the loan. Since most private mortgages are a short duration, that means we want to know what the loan plan is after the term has ended.
Contact Keystone Capital today to start your application.
Advantages of Using Private Mortgage Lenders
One key advantage to using private mortgage lenders is their flexibility. They can work with borrowers who have unique financial circumstances, such as self-employment or credit issues.
This lets you get a home loan when traditional banks might say no. And because they're not bound by the same tight lending requirements, these lenders can often approve loans faster too.
According to the Financial Consumer Agency of Canada, another benefit is that private mortgages are usually short-term – generally for one-year terms. This gives you the time needed to improve your credit and then transition into a more conventional mortgage option.
Flexibility with lending criteria - great for those with non-traditional income sources or poor credit scores.
Faster approval times compared to traditional banks - ideal if you need quick access to funds.
The possibility of short-term loans which could help in improving overall credit health over time before transitioning into regular bank mortgages.
No doubt about it: if traditional avenues aren't an option, private lenders offer opportunities worth considering.
Contact Keystone Capital today to get started.
Potential Risks Associated
Private mortgage lenders can be a much needed lifeline, yet there are risks involved that you should be aware of. One risk is the higher interest rates, as Private lenders typically offer higher rates when compared to traditional banks.
At first, the high interest rate may not appear to be a major issue. You may not think the higher rate matters if no one else will give you a loan; however, over time it can become quite costly. That's another reason why it's always best to work with your Mortgage Broker to determine your exit strategy into a cheaper loan product for a longer term.
There are also fees to consider - but this varies greatly with which private lender you choose. So be sure to research them and ask a lot of questions when you chat with a prospective lender.
Comparing Private Lenders to Traditional Banks
When seeking a mortgage, it's essential to comprehend the contrast between private lenders and regular banks. Let's start with approval criteria. Unlike big banks that rely heavily on your credit score, and T4 employment income, private lenders often focus more on the marketability and value of the property.
This can be a lifesaver if your credit history isn't perfect but you have a solid investment opportunity. But there is a trade-off - interest rates are usually higher with private mortgages because they take on more uncertain loans.
The application process also differs significantly. Big banks tend to have lengthy processes due to their bureaucratic nature while private lenders offer quick approvals making them ideal for time-sensitive deals.
Lending Criteria: More lenient in case of private mortgage lenders focusing primarily on property value over credit scores.
Rates: Typically higher at private mortgage firms as compared to conventional banking institutions due to increased risks associated with unconventional lending practices.
Paperwork & Approval Time: Less red tape and quicker approvals make securing funds from these non-traditional sources an appealing option especially when timing is critical.
Bank of Canada analysis suggests that although these differences exist, each type has its place in our financial ecosystem catering different borrower needs effectively. Please remember: knowing which lender suits your unique situation is essential to finding the right loan.
Navigating the Process of Securing a Loan from a Private Lender
Securing a loan from private mortgage lenders is like climbing your first mountain. You need preparation, courage, and guidance.
Before beginning your climb, it is important to have the right supplies - in this case an application form that outlines your financial situation. Many Canadian lenders have online forms making this step more accessible.
The next phase involves property appraisal – determining its value before moving forward with lending money against it. Imagine this as surveying the terrain ahead on your hike; understanding what challenges may lie in wait.
Your credit history plays another role too – think of it as health checks before setting out on an adventure. The better condition you're in (or better score), the smoother journey (or lower interest rate) you can expect.
Lenders also consider your income source, ability to repay, and exit strategy. Just like checking if you've got enough provisions to make it back from your trek.
In case traditional financing doesn't work out, don't fret. A good broker will guide clients through other avenues such as using tax incentives when buying homes or ways to improve their credit scores similar to alternative routes up our metaphorical mountain.
Speaking of brokers - special shout out to Alex Lavender for helping us create this blog post.
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FAQs in Relation to Private Mortgage Lender
Is it better to go with a private mortgage lender?
It really depends on your situation. Private lenders can be ideal if you need a loan quickly, have unique income. credit score or only need it for a short period of time. However, they often have higher rates and fees.
Can anyone borrow money from a private lender?
Absolutely, anyone can apply for loans from private lenders. However, not everyone is accepted. You'll have to reach out to them and make sure you understand their specific requirements and conditions.
Can you trust private lenders?
You can trust reputable ones like Keystone Capital Group. Do your homework though: verify their licensing status and read reviews before committing to any agreements.
