Private Lending Mortgages
Private Lending Mortgages or Alternate financing, although usually a more expensive option, can facilitate all kinds of client scenarios. If circumstances cause you to fail to qualify for more traditional financing, then private/alternative lending is certainly something to investigate.
Simply put, there are 3 levels of financing for Private Lending Mortgages which include:
- Conventional “A” Lenders: Banks, Credit Unions and Monoline Lenders that are only available to Mortgage Brokers
- Alternate “B” Lenders: requires a minimum down payment of 20% (possibly more pending on property type and lending area) Debt servicing has room for greater amount of debt (up to and north of 50%/50%) and as noted down payment must be at least 20%
- Private Lenders
As mentioned above, life circumstances can be an obstacle when qualifying for traditional lending. Examples (not inclusive) suitable to private lending are Business for Self, Bankruptcies (former/during), Challenged and/or Bruised credit, Life events (ex. divorce), Consumer Proposals, Low reporting income, Property features on a purchase (ie: mobile home) … Although things happen in life that are out of your control, this does not mean you won’t be able to find financing.
Private lending mortgages usually results in a 12-month term but can be open ended. The term length of your private mortgage can be positioned that the term ends in 12 months. Also, there is an option that can leave the term open so that you can pay it off any time (even in 6 months if you are ready to move to a traditional lender). Be careful to know the terms. Often you must pay 3-month interest penalty or other penalties that will be shown in the contract of the mortgage commitment. Interest rates can be as low as 4.99% or as high as 19.99%!
Down payment amount depends on the total loan amount and lending area. Usually with a smaller down payment there is a higher interest rate associated with the mortgage. Higher interest rates can also reflect circumstances (such as bankruptcy, low credit scores). This is all dependent on the client as well as the lender. Often interest only payments are associated with the 12-month term of a private mortgage. Down payments can vary, depending on the circumstances of the client, the property itself, and the individual lender.
Private Lending means there is a fee beyond the amount that is borrowed. With private financing the broker gets paid directly from the borrower. This means that the Lender will charge a fee that is above and beyond the interest being paid and either splits the fee with the Broker and/or the Broker charges a fee that is beyond the cost of both the interest of the mortgage and the Lender fee.
The private lender is always interested in the appraisal as it reflects the marketability of the property.
- Appraisal: The lender can require that the appraisal is done by an appraiser of the lender’s choice
- Marketability of the property: This is a very important part of purchasing property that is going to be financed by a private lender. The lender will want to know how marketable the property is.
Documentation varies from lender to lender. Not as many documents are needed as the lender is more concerned with the marketability and selling potential of the property being purchased.
Fees & costs beyond the Lender/Broker fee for your Private Lending Mortgage:
- Administration Fee: If applicable a standard administration fee of $295 – $795
- Renewal Fee: Renewal fees vary. We’ve seen anywhere from $200 to 1% of the loan amount. In other words, if you want to extend your time with a private lender and your contracted time (12 months) has expired the private lender will likely charge a renewal fee to renew your mortgage.
- Good Faith Deposit: Some lenders require good faith deposits that will be 100% refundable at the time of closing. For example, a lender may require a refundable $500 good faith deposit to be sent to the lender’s solicitor and credited back to you upon the completion of the mortgage
- Satisfactory Fire Insurance