Private money lending might seem scary, especially if you aren’t familiar with the financial industry. However, this is a very common type of financing with numerous benefits, including flexibility and fast loan approvals. In this article, we’ll discuss private mortgage lending in Canada and show you how the process unfolds.
Loans are the pillars of the modern financial world we live in, and a catalyst in making the economy more dynamic. Many of us already have or will end up relying on loans and mortgages at some point in order to move past a financial boundary and step into the life we truly want.
When it comes to taking out a mortgage, most Canadian homebuyers will have to go through the process of securing a lender as a source of financing. This is often a stressful and full-time job, especially for first-time buyers. Banks and credit unions are usually everyone’s first choice of lenders to go to, but they may not be the best choice for everyone.
If you have income or credit issues or have been rejected by an A-lender in the past, you may want to consider private lending.
Private money lenders are often individuals or private companies that don’t require the same level of documentation or credit score that a bank would require. A private loan typically has fewer strings attached and smaller reporting requirements than most institutional loan programs. However, they do not always come cheap.
If you’re reading this article, chances are you’ve exhausted other options and are now left with private lending as an option. Private mortgage lending in Canada can be a great option if you are looking to buy a property and the bank said no, but it isn’t right for everyone.
Take time to read through our article and see if private lending is a good fit for you.
How To Get a Mortgage
Mortgages are an essential financial tool in today’s society. Buying a home, refinancing, renovating, or taking out a home equity loan all require a mortgage. A mortgage is a financial contract between a lender and a borrower, backed by real estate.
At the beginning of the process, you will be required to provide the documentation necessary to determine your eligibility for a mortgage and the amount that you are eligible to borrow. After you have provided the documentation, the lender will review it and determine if you are approved for a loan.
Qualifying for a mortgage usually happens if you meet a few criteria:
Good Credit Rating
It’s no secret that having a good credit score will open important doors for you and protect you from financial misfortune. However, when it comes to getting a mortgage, having a good credit score downright makes a difference. In fact, you may need to have a credit score of 680 or higher to qualify for a mortgage.
To qualify for a mortgage, you’ll need to make a down payment between 5% to 20% of the total amount you are looking to borrow.
Applying for a mortgage means your income may also be subjected to scrutiny. You’ll typically need to show proof that you’ve been with the same employer or, in some cases, in the same line of employment for at least two years straight. If it’s any less than that, or you are self-employed, lenders may ask you to show federal income tax statements to verify your income.
Why Might You Use Private Lending?
The requirements mentioned above are all typically found with traditional lenders. But what happens if you don’t meet one or two of them, and the bank says no?
Thankfully, you can resort to private lending. Due to more flexible rules and regulations, alternative/private lending is often open to anybody with enough equity in their property.
Private lenders may overlook the fact that you have bad credit or you are unemployed and will agree to lend you the amount you need if you have enough equity in your property. For many people, private mortgage lending in Canada is ideal because it allows them to quickly access the funds they need — even though they may pay a little extra in the long run.
A private money lender will be able to offer you more flexible terms than a bank or credit union. They don’t have to adhere to the same strict rules as banks and credit unions do. They can offer you competitive rates and fees.
Another benefit is that with a private lender, you don’t have to go through the same application process as with banks. This means it will take less time for you to get your loan approved and the funds into your account. You won’t have to wait around while your application is being processed by the bank or credit union. There are no delays when dealing with a private lender.
With a private lending deal, there are no other parties involved either. There is a clear and direct relationship with the applicant.
How Do You Find a Good Private Lender?
Researching before borrowing money from a private lender is a must. What’s the risk profile of this lender? What’s their background? What’s their experience? What are the terms of the loan? What’s the best way to approach a private lender?
To make sure that private lending is the right choice for you, but also to choose a lender that ticks all your boxes, it’s best to work with a mortgage broker.
A reputable broker will know the market in British Columbia and will be able to provide you with the best options available to you. They will help you find a trustworthy and reliable lender and determine if this is the right option for your particular case. You must weigh up all of your options before deciding on a private lender.
The Bottom Line
Applying for a mortgage and getting the property you desire may be one of the most important things you do in life. Whenever viable, don’t let a bad credit score or the lack of a fully stable job get in the way.
Private lending might not be the right fit for everyone but if you are self-employed and don’t have a regular paycheck, or if you have bad credit, private lenders may be your best option.
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