Private mortgages are a valuable but under-utilized option for mortgage applicants. It’s especially useful for those who might not have the strongest application or want a little more flexibility that can come with working with a bank or traditional lender.
Strict Lending Rules Means that Alternative Options are Necessary
As more regulations are imposed on potential homeowners, there’s going to be a big pool of people who will have trouble qualifying. A portion of this pool won’t have access to a guarantor or be able to pay a higher interest rate.
The rules imposed by the Federal Government in October 2016 is a prime example of how private mortgages can fit into the business of lending and provide an intriguing option for many people.
How do I Apply for a Private Mortgage?
You can research, approach and meet with private lenders the same way you would with traditional. This is not a shady business but is out in the open and can be discovered through word of mouth or by searching the internet.
Each will have their own stipulations and regulations so it makes sense to shop around.
The Pros of a Private Mortgage
Not every applicant has a full-time job, T4, big down payment and strong credit rating. The big banks typically balk at borrowers who don’t check off enough boxes.
Financing through a private mortgage is a distinct alternative for someone (or a group of people) who fall into any of the following:
- Foreign investors
- Applicants who are rebuilding their credit
- Applicants who owe taxes that are in arrears
- Anyone looking to flip a property
- Looking for equity for other ventures like starting a business
The Cons of a Private Mortgage
With this type of arrangement, the property matters as much as the applicant. You could be rejected if the property or location are not appealing to the lender.
There are always fees associated with working with private lenders whereas with traditional lenders, the banks typically pay the broker. It can be as low as 1% or as high as 5% so it’s best to ask each lender you are negotiating with.
If you’re having difficulty getting approved by traditional lenders than a private mortgage is worth reviewing. There are a ton of benefits using a private mortgage and it’s a proven way to get into the market.