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Extremely Flexible Qualification: No income qualification, No minimum credit score.
Personalized Solution: From 3 months to 12 months Terms with Open & Prepaid options
Competitive Rates: Equity based Low 1st & 2nd Mortgage Rates upto $5M funding in days
Private mortgages, whether they are first or second mortgages, can offer an alternative solution to homeowners and buyers when traditional financing options are not available. With flexibility in qualifying criteria and the ability to finance non-conforming properties, private mortgages can be a strategic tool in certain situations. In this guide, we'll explore when private mortgages are the right solution, how they differ from traditional lending, and the risks and benefits of using private lenders in Canada.
Private mortgages can be the ideal choice when conventional lenders like banks and credit unions turn you away. Here are some scenarios where a private mortgage may be the best option:
Poor Credit: If your credit score is low or your financial history doesn’t meet the requirements of traditional lenders.
Self-Employed or Irregular Income: Non-traditional income sources or self-employment can make it difficult to meet the strict criteria of banks, but private lenders often have more lenient policies.
Non-Conforming Properties: Properties that don’t meet the typical criteria of conventional lenders, such as unusual buildings or properties with legal issues, can often be financed by private lenders.
Urgency in Closing: If you need quick access to funds and cannot wait for the lengthy approval processes of traditional lenders, private mortgages provide faster solutions.
Private lenders generally focus on the value of the property and the borrower’s equity rather than credit scores. Here’s what you need to know about down payments and equity:
First Mortgages: Typically, private lenders require at least a 20% down payment, but it can be higher depending on the property value and the borrower’s financial situation.
Second Mortgages: For second mortgages, the amount of equity in the home must be sufficient to secure the loan. Private lenders will often lend based on the available equity after the first mortgage is accounted for.
Higher Down Payments: Private lenders may require higher down payments than traditional banks to mitigate the increased risk associated with the loan.
It is our job to get your lowest possible rate. Your rate qualification depends on certain factors, such as credit score and home equity as per regulations.
*Advertised rates may not be offered by this lender. Mortgage lender offers are aggregated by RateShop & its Brokerage Network subject to change without notice. Speak with our mortgage broker about APR and qualification requirements.
Unlike traditional lenders who rely heavily on credit scores and income verification, private lenders have a more flexible approach:
Credit Score: While credit scores still matter, private lenders may approve loans even if the borrower’s score is low or they have no traditional credit history.
Income Verification: Private lenders may place less emphasis on formal income documents. If your financial stability can be demonstrated through other means—like large deposits, savings, or business earnings—private lenders may approve your loan.
Property Value Over Credit History: For private lenders, the value of the property often takes precedence over the borrower’s creditworthiness.
Private lenders are often the go-to source for financing non-conforming properties, which traditional lenders are hesitant to finance. These types of properties include:
Fixer-Uppers: Homes that require substantial repairs may be rejected by conventional lenders but could qualify for a private mortgage.
Unique Properties: Non-standard homes or buildings that don’t fit traditional appraisals or guidelines, such as commercial properties or rural estates.
Legal Issues: Properties that have legal issues, such as liens or zoning challenges, may be eligible for private financing.
Private mortgages can be used for both short-term and long-term financing, depending on your needs:
Short-Term Solutions: If you're looking for a temporary solution, such as bridging the gap until your financial situation improves or until you can refinance, a short-term private mortgage is a good fit. These typically last from 6 months to 3 years.
Long-Term Solutions: Some private lenders offer long-term mortgages, often for up to 5 years or more, though the interest rates may be higher than those of traditional lenders. These are useful for borrowers who need a longer repayment term but may not qualify for traditional loans.
Private mortgage rates tend to be higher than rates from traditional banks due to the increased risk to the lender. Here’s how private mortgage rates compare:
Higher Interest Rates: Expect to pay higher rates, typically 8-12% for first mortgages and 10-15% for second mortgages, compared to the 3-5% range from banks.
Risk-Based Pricing: The exact rate depends on the risk of the loan, which includes factors like the property’s value, the borrower’s equity, and the loan amount.
Flexibility in Terms: While the rates are higher, private lenders offer more flexibility with loan terms and may be willing to adjust based on the borrower’s specific situation.
RateShop works with a wide network of private lenders to offer creative solutions that meet your needs. Whether you're looking for a first mortgage, second mortgage, or a short-term bridge loan, RateShop’s brokers will:
Compare Lenders: We help you compare various private lenders to find the best rates and terms.
Provide Expert Advice: Our brokers are experienced in handling complex private mortgage scenarios and can guide you through the process.
Tailored Solutions: We focus on finding customized private mortgage options for your specific financial situation.
As with any financing solution, private mortgages come with both risks and benefits:
Flexible qualification criteria
Faster approval and funding
Ability to finance non-conforming properties
Options for borrowers with bad credit or non-traditional income sources
Risks:
Higher interest rates than traditional mortgages
Shorter loan terms, which may require refinancing sooner
The potential for aggressive collection practices if you default on the loan
It’s important to weigh these risks and benefits carefully before deciding on a private mortgage.
If you’re considering a private mortgage, whether a first or second mortgage, it’s important to understand your financial situation and the pros and cons of private financing. At RateShop, we work with a network of trusted private lenders to help you find the best possible solution for your needs. Contact us today to explore your options and see how a private mortgage could work for you.
RateShop Inc. is a Mortgage Brokerage offering lowest mortgage rates to Canadians. We are provincially licensed in the following provinces: Mortgage Brokerage Ontario FSRA #12733, British Columbia BCFSA #MB600776, Alberta RECA #00523056P, Saskatchewan FCAA #00511126, PEI #160622, New Brunswick FCNB #88426, Newfoundland/Labrador. Our Quebec Mortgage Transactions are serviced by Orbis Mortgage Group AMF# 181136.
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