New Appraisal Clause # 17 & #18 added to appraisals. Appraisal Institute of Canada (AIC) in January 2018 requires appraisers to add these two clauses to reports or their E & O insurance will not cover them. All B-Lenders & Private Lenders can no longer rely on the report unless B-20 legislation has been applied to lending.
How Does The New AIC Clause Affect Private & B-Lenders
Since B-Lending & Private Lenders do not rely on B-20 legislation they no longer can rely on a transmittal letter from the appraiser. This puts a greater emphasis on the lender to do a through underwriting of the file.
There are many places you can find hard money lenders. Primarily you should consult with a Mortgage Broker who would have the proper skills to guide a consumer through the tricky process of mortgage financing. Other places you can find Alternative Mortgage Lender services is through sites in British Columbia like Kijiji and Craigslist. I do not recommend dealing directly with individual money lenders you should use the services of a BC Mortgage Broker.
What Sorts of Loans Do Hard Money Lenders Provide?
Hard money lenders in real estate provide a variety of mortgage financing. Generally these lenders provide 1st Mortgage 2nd Mortgage & 3rd mortgages but can also do draw mortgages for construction and provide commercial mortgage financing as well as stop foreclosure mortgages.
What sort of interest rates do Hard Money Lenders offer?
Interest rates from these types of lenders vary depending on the position 1st 2nd or 3rd of financing and the loan to value as well as the city or towns location. 1st mortgage rates would be your lowest rate then 2nd & 3rd position would be substantially higher rate. For an estimation of private mortgage rates call us and we can give you an estimate right over the phone.
What sorts of Terms Do Hard Money Lenders offer?
These types of mortgage financing come with 1 or 2 year terms. Primarily this type of financing is used to help get home owners out of tough financial situations. A shorter term allows individuals to correct their income or credit situation and improve their financial outlook in hopes to become bankable in as little as 1 year.
Once you have determined the cost of breaking your 1st mortgage you can start to evaluate if there will be savings in a 1st mortgage refinance.
Additional Costs of refinancing your 1st mortgage
The costs of refinancing your home are many. After determining the penalty there are Discharge fees, Legal fees, Appraisal fees and more.
Home Equity Loan or HELOC
A Home equity loan or 2nd mortgage can mean two things. Either a HELOC up to 65% through a bank. (you must income & credit qualify for this style of mortgage) or a straight equity lender which is not focused on your income or credit rather they rely on the equity in your home. These lenders lend up to 75% of your homes value in major centers.
Cost of a Home Equity LOC or HELOC
HELOC or home equity line of credit is an affordable solution but not all banks offer the product. HELOC maximum loan to value is 65%. You must income & credit qualify. Costs for HELOC are generally legal and appraisal costs and if it’s a strata additional documentation will be required.
Cost of a Home Equity Loan or 2nd Mortgage
Costs of a home equity loan or 2nd mortgage are appraisal costs, legal costs both for the borrower & lender as well as broker &/or lender fees on top of a higher interest rate.
You can use your home equity to get a mortgage to payout a consumer proposal. Usually when people use a consumer proposal it is to assist them with restructuring their debts into a manageable payment. Once they have done this home owners usually see significant cash flow relief, but they still have this monthly bill looming over them and wonder how to payout this consumer proposal.
Benefit of paying out a consumer proposal early
The benefit of paying out a consumer proposal early is it allows your credit to recover instantly. Major banks will want to see a min of 24 months discharged from a consumer proposal. However, B-Lenders do have some products that will allow you to refinance your 1st mortgage to payout a consumer proposal and assume the consumer proposal into the mortgage. This enables you to clear out the consumer proposal fast and start improving your credit years earlier.
Types of Financing & mortgage to pay out a consumer proposal
There are a variety of ways to payout a consumer proposal with financing:
Mortgage financing is one way. While the large banks do not get involved with financing out consumer proposals mortgage brokers have access to B-Lender mortgages & Private mortgages that will in some cases consolidate a consumer proposal into a first mortgage. Keep in mind that this requires you to payout your 1st mortgage to consolidate into the mortgage to payout a consumer proposal.
Second mortgage financing is another way to use a mortgage to payout a consumer proposal using a home equity loan. With home values going up you can tap into the equity built up in your home to payout a consumer proposal. In some cases, this is a far cheaper way to go. It allows you to keep your 1st mortgage in place at the best rate possible and allows you to payout the consumer proposal instantly. Once your 1st mortgage comes up for maturity you can consolidate the 1st & 2nd mortgage usually back at a major bank usually within 2 years.
There are also financing companies that will provide you a loan to payout a consumer proposal. These loans are sometimes at a very high interest rate and a short term. The benefit is you are paid out of the consumer proposal right away. The con is you are stuck with another high rate loan with a large payment which can trigger a payment issue moving forward.
Home equity loans can be used for a variety of reasons even bad credit. When you have bad credit a home equity loan can allow you to payout or negotiate your debts which should improve your credit and improve your chances of qualifying back at a bank in as little as 12 months. Second mortgages are mostly used when consolidating your debts into a bad credit mortgage loan.
How to Negotiate debt into a home equity loan.
We can show you how to negotiate debts with an R5 to R9 down and in some cases, paying 50% to 35% on the dollar. We also work with secondary debt management companies that can help assist you. Many times, the home equity loan can pay for itself with the money you save in negotiating these debts.
What is Bad Credit
Credit scores in Canada range from 300 to 900. The higher the credit score the better your chances of getting approved. A bad credit score is 600 or below and if you are in this range your application usually will have to be serviced by a private mortgage lender.
What Causes Bad Credit?
Bad credit can happen from a combination of issues:
Payment History, late payments and missed payments can negatively affect your credit score.
Delinquencies continues late or missed payments
Balance & limit: Keeping balances over 50% of the limit and constantly running up the limit of your credit card can have a negative impact on credit score.
To Many enquirers: Credit seeking has a negative impacted on your credit score. Applying for car loans or multiply credit card application or other applications for credit can impacted your credit.
Account History: Credit is a history of you using credit. If you have very new credit this can be a false credit score. As well if you close old credit cards you are wiping out history that can be vital to showing your history.
What is a good credit score?
Good Credit scores start at a rating of 650. Depending on your income and debt servicing levels you should be able to obtain many options of financing.
If you own a home and have home equity you can get a home equity loan even without a job. Home equity lenders primary focus is your homes equity. Many times, people starting a new business, new Canadians or temporary job loss can leave home owners without conventional income to qualify under. With home equity lenders this doesn’t matter as much. We can explore a few options that assist no income home equity loan approvals.
Types of No Income Home Equity Loans
Stated Income Home Equity Loans
The most common home equity loan is one where a home owner is self employed but claims very little income. We have many options both at a bank & through our private mortgage lenders.
Pre-Paid Home Equity Loan
If you are out of work or started a job with limited income and require funds to bridge yourself until income starts flowing in, we can provide pre-paid mortgage options. This is usually using a 2nd mortgage. If you currently have a 1st mortgage at a great interest rate, we can offer a second mortgage where you obtain the money you require plus an additional lump sum to pre-pay your mortgage, so you can work on the things that are important to making you successful.
Home Equity Loan with Guarantor
This option may work both at a conventional (bank) lending & home equity lending. For this purpose, I will speak only to the home equity loan aspect.
Many times, I have applications where a home owner have a home but very little to no income. This can be due to employment, marital reasons or any other reason. These home owners sometimes have a spouse or common-law spouse or any other variation of relationship. In this situation you can have the home owner that makes very little but the “partner” makes very good income. They may want to be associated at this time with the title of the home or may not want to be associated with the title of the home. The consigner may have good credit or bad credit it doesn’t really matter the primary focus is showing lenders that there is a good likelihood that this guarantor will assist with the payments.
A reverse mortgage is a type of mortgage offered by Home Equity Bank and Equitable Bank. It essentially allows home owners 55 years or older to borrow money using their home equity without having to make a payment. Your age income & credit is not an issue.
Balloon mortgages can work in a variate of ways. It allows a home owner to make a small monthly payment but, in some cases, no monthly payment of interest or principle for a fixed term. This term is usually one to two years. At the end of the term you would have to pay the balloon interest owed or refinance again to include the balloon interest owed. This is primarily offered only if you have substantial home equity. The cons are obvious if your employment situation does not improve in a short period of time you will erode the equity saved up in your home and incur a higher cost of borrowing for this type of product.
If you are a home owner in British Columbia and you have fallen behind on payments or your bank will not renew due to previous payment history here is some options you can consider.
Mortgage Lenders That Assist with Foreclosures
Your BC Mortgage Broker has options through alternative mortgage lenders that can assist with reinstating your mortgage & if require refinancing your entire mortgage.
Lawyers to Consult
Dial A Law library “is prepared by lawyers and gives practical information on many areas of la in British Columbia.
What is a Foreclosure?
A Foreclosure is a action from a money lender when the borrower has stopped paying back the mortgage.
What is a Mortgage?
Mortgages are contracts between lenders and borrowers to pay back a loan or mortgage.
What are missed or late mortgage payments?
Lenders do not want to foreclose on properties so missing or being late on a few payments doesn’t necessarily mean you will loose your home. Lenders usually start the process of foreclosure after the 2nd or 3rd month after of non payment.
What The Process if Lenders Start Foreclosure?
Petition: Lawyers file a petition to court and you will be served with a copy. It is sent to all interested parties. You can file a response to the petition.
First Hearing: At the hearing the lender will be looking for the judge to give them an “order nisi”. Most cases the borrower will be granted a “redemption period” usually 6 month redemption period.
What Happens at the End of Redemption Period: Typically at the end of a redemption period the lender can choose to have he property listed for sale by the court. The other options for the lender is to request “absolute order for sale”.
Court ordered Sale: Court ordered sale is when the courts list the property for sale and approves the sale of the property. If there is a short fall to pay the petitioner in full the petitioner can seek a deficiency judgment form the court against the borrower.
Order Absolute: Absolute order of Foreclosure is granted to the petitioner and they become the new resisted owner of the property. This happens when when the property value equals or exceeds the debt. No other action an be taken against the borrower.
To review your situation please feel free to contact us or apply online and we will be happy to discuss options.
How to calculate loan to value for a home equity loan is simple. Most times when refinancing a mortgage or taking out a home equity loan lenders want to know what the loan to value is.
Why Is Loan To Value Important To Mortgage Lenders
Loan to value is important to mortgage lender because it help them to determine risk. The higher the degree of risk for the lender usually indicates a higher rate of interest and costs applied to the loan.
How Much Equity Do Need To Get A Home Equity Loan?
Loan To Value Thresholds for Home Equity Loans (location & property type can restrict loan to values)
<50% Loan to Value (best rate options for 1st & 2nd Mortgages)
<60% Loan to Value (best rate case by case options 1st & 2nd Mortgages)
<65% Loan to Value (Good market rate options 1st & 2nd Mortgages)
<70% Loan to Value (Market rate options 1st & 2nd Mortgages)
<75% Loan to Value (*Market rate options 1st & 2nd Mortgages) May have to provide more information to qualify for.
<*80% Loan to Value (case by case must show decent credit and an ability to pay) Other requirements may be required
<*85% Loan to Value (case by case conditions apply)
For assistance calculating loan to value feel free to give your BC Mortgage Broker a call. (please note that this for information purposes and only relates to British Columbia Canada.)
Past client who owns a bare land strata in Coquitlam BC needed some extra money to help with living expenses. Client is a senior has limited income but has a common law wife still working and his house was valued at $950,000. Client had a 1st mortgage of $377,000 with a B-Lender but did not have enough income to support a larger 1st mortgage. Added to this there were several years before his 1st mortgage was coming up for renewal and a large penalty if he paid out.
We were able to secure a second mortgage of $215,000 at 8.8% with broker and lender fees of 2%. Client now has the money to have fun go on a holiday and live comfortably for the next few years.
Second Mortgages are a fast and easy way to obtain money using a home equity loan to do things like: debt consolidation, home renovations, create fast business capital if your self employed, pay outstanding bills like taxes or liens. These are great for reducing payments, paying out debts or increasing cash flow but what else should you consider?
Rates on Private 2nd Mortgages
Consumers are fixated on rates, this shouldn’t be a surprise but as a mortgage professional we can or should be able to see a larger picture.
Take for instance a blended rate. What is a blended rate you might ask? By looking at your 1st mortgage balance and rate and considering a smaller second mortgage usually at a much higher rate you can compare your blended rate. Here is a link to a blended rate calculator.
Example of How a Blended Rate Works
Look at it this way, your 1st mortgage is larger (lets use $350,000 as an example at a rate of 3.25%) and you are looking for a 2nd mortgage which is usually smaller (lets use $50,000 as an example at a rate of 10%) your Blended rate between the two loans are 4.09%. So why are you focused just on the 2nd mortgage rate at 10%? It’s a smaller amount of money.
Costs in Breaking a 1st Mortgage (IRD)
Now consider what is the penalty of breaking your 1st mortgage? Most Fixed mortgage terms have an interest differential penalty (IRD). This penalty can be many thousands of dollars depending where you are in the term and the interest rates offered by your bank.
Costs associated with a 2nd Mortgage
Now 2nd mortgages do have a higher rate of interest depending on the loan to value. As well there are legal costs such as title insurance, Insurance Binders plus strata Form B’s if you are in a strata or bare land strata. Onto of this Mortgage Brokers do not get paid by the lender so the borrower does have to pay a fee associated with 2nd mortgages financing. In a lot of cases these costs of doing a 2nd mortgage are a cheaper option than breaking the term on your 1st mortgage.
What a mortgage expert should be doing when looking at your application:
Review the length of term left in your 1st mortgage to determine if its in your benefit to refinance now or obtain a 2nd
Review your credit to see how long you will require funds if you have poor credit.
Consider what lender would work best. (some lenders work with clients longer who have a history of late or missed payments while others have little patience for this type of borrower) Of course costs and rates will be higher for lenders that offer a more patient approach but the over all savings of a lender not renewing is usually far greater.
For a review of your situation feel free to call us.