Mortgages for Landlords During The COVID-19 Pandemic
As the unexpected COVID-19 turmoil has managed to cause a significant and dramatic impact on all areas and all aspects of our lives, the pandemic’s consequent disruption to business was especially brutal for the Canadian real estate sector.
With both big and small businesses forced to shut their doors down and unemployment rates on the rise, more and more people are struggling with financial hardship and facing the risk of being unable to pay their rent, mortgage loans, and in many cases, their basic needs.
The increased demand for loans and mortgages for landlords has clearly signaled that among the ones mostly affected by the pandemic, property owners are occupying a leading position.
But obtaining a loan during COVID-19 will be more difficult than what borrowers were accustomed to in the past years.
Why is this?
Together with people’s health, income and financial security still uncertain and shaken, the Canadian real estate market might also be heading towards a crash caused not only by COVID-19, but also by the country’s heavy household debt burden.
Navigating through a crisis as the current one is difficult for countries all over the world, but more so for a population deeply in debt.
With the economy reaching an all time low and future rehabilitation trajectories still difficult to forecast, both residential and commercial rental systems are suffering major distress and the demand for landlord loans are on the rise.
That’s because many landlords are genuinely finding it difficult to make ends meet, due to businesses closing down, tenants not paying rent, contracts getting postponed, and the number of people moving to a new home greatly reduced.
Legal ramifications of the outbreak and the consequences of contractual relationships are just a few of the issues which almost anyone involved in the real estate sector whether as a real estate investor, a tenant or a landlord, is facing right now.
Being that the COVID-19 pandemic is an unforeseen and unavoidable exterior event, outside of anyone’s control, invoking the “force majeure” clause in some of the rental contracts, can temporarily release the parts involved from their contractual obligations.
What this basically means for the landlords is that tenants can exempt themselves from paying rent during the time of pandemic without getting evicted as long as:
- They can bring proof that their income has been affected
- Their landlord’s mortgage is federally backed, or
- They live in a federally designated low income housing
Even if temporarily protected from eviction, tenants will still need to pay their rents at some point when the crisis ends.
But when this point will come, no one knows yet.
So what are landlords supposed to do in the meantime?
Mortgages For Landlords Increasing In Demand
Everybody is talking about how difficult it is for tenants to pay their rents, but not so many are wondering how property owners are supposed to cover their expenses.
The demand for landlord loans is on the rise as property owners are being more and more concerned by the increased number of payment defaults from their tenants.
The reality is that many landlords who have been relying on property investment or rentals as their main source of income, are now wondering how to keep up with their loans or mortgage repayments and avoid foreclosure.
There’s only a small category of homeowners who can breath relief for a while, and that’s the ones with federally backed loans.
But what about the rest of them?
How are small landlords supposed to cover their mortgages and property expenses if their tenants don’t pay the rent?
In trying to help, some bank lenders have agreed to offer mortgage relief during the pandemic but not all the institutions have the same ease when supporting their clients throughout the crisis.
If you are a property owner looking to find a solution for how to pay your expenses, there are a few things you should know before talking with your lender.
When working with a bank, deferring your mortgage repayments doesn’t come without costs. The entire amount that you will not pay during these months will be still added to your loan balance.
What’s worse..
Enrolling for a deferral can risk hurting your credit score and affect any future loans you might want to take. It can also make your mortgage more expensive in the long run, and many will have no way to keep up with their mortgage repayments.
As owner of a rental property, you know that mortgage costs are not the only monthly payments you have. Home repairs, maintainace, utilities or home insurance are just a few of the other added monthly costs.
Ok, so what’s the solution then?
There are two potential solutions to your problem.
Most people will head to their bank, but that brings a whole set of other problems.
The Problem With Banks and Landlord Loans
As a landlord affected by the crisis, your first thought will probably be to speak with any of the local banks.
But when looking to find a solution for your rental property funding, be it a mortgage, a loan, or refinancing, you should keep in mind that as a landlord you are not eligible for refinancing.
Even selling your property will prove difficult, as potential new buyers will face the same difficulties as you when trying to take out a bank loan.
If you already have an existing mortgage, your hope is that you could be eligible for some sort of loan support either in the form of rent relief, deferring your mortgage repayments, or getting the approval for an extension.
With some banks it could work, and sometimes, for some of you lucky ones, there might even be no charge added on paying late fees and no impact on borrower’s credit scores when looking to defer.
Unfortunately, the reality is that not all bank lenders are the same, and the majority of them are more preoccupied right now with securing themselves than helping their clients.
During these turbulent times as interest rates are going downhill, and the need of financing increases day after day, the majority of public lending institutions are scared to death of taking risks and are trying to control the likelihood of credit default.
In fact, together with the new set of internal laws and regulations, the majority of banks have set the bar higher than ever before, and are scaling back on all their lending activities.
With standards tightened up, anyone trying to apply for a mortgage for landlords or any other type of loan, will be in for a hard time.
When looking to determine the credit worthiness of their potential borrowers, banks will thoroughly analyze your cash flow (the amount of money you are left after paying your taxes and credit), credit reputation, and collaterals.
They will also ask for an excellent credit score, higher than 700, and a minimum down payment of 20% for any new mortgage. Not meeting these requirements will likely lead to your loan application getting rejected.
The second and best solution for any financially distressed homeowner who’s profile doesn’t fit into the narrow framed parameters of conventional lending institutions, or for any real estate investor in need of quick access to capital, are private money lenders.
Private Mortgage Lenders a Saving Grace For Landlords
Private lending can be shortly defined as a privately negotiated loan which takes place outside of traditional lending networks. When working with a private lender, you will not have to deal with restrictive governmental systems and institutions like banks or credit unions.
As you probably know by now, if you are our client or you are a regular follower of our blog, private mortgages are funded by individual investors, corporations or groups of investors. The said loans are secured by a mortgage against real estate.
With the residential mortgage industry changing a lot in the last few months, the private lending sector was presented with a wide range of new opportunities and challenges.
The inability of foreseeing how much economic or real estate deflation could happen in the future has caused alternative lenders also to be a bit more cautious when proceeding with a funding.
But still, this doesn’t mean that they are not easier to work with than banks!
Private mortgage investment offers the security of the property being funded, unlike mutual funds or stocks. Compared to banks which are predominantly depending on short-term deposits, alternative lenders are usually looking at the long-term probability of profit and they will do their best to keep funds performing for a long time even during troubled waters.
Just like before the pandemic, many of the private money lenders won’t be as concerned with the borrower’s credit characteristics, lack of income or poor credit scores. By welcoming even the clients which banks had refused from applying for a landlord loan, alternative lenders will have their focus solely on your home’s equity.
Without having the same new crisis regulations and requirements as banks, private money lenders are only concerned by the risk of your property’s potential price to fall further and take longer to recover like in the case of most rural areas. With properties in the major urban and suburban areas in Canada still holding their value due to high demand, owning a property in a key location will surely offer you a loan advantage.
When looking for what is the best loan for a rental property, alternative lenders can help you get the loan you need for anything from paying your debts, utilities, home maintenance, or even investing in a new property without relying on your tenants to pay up.
How Do I Use My Rental Property As Collateral?
If you’re a homeowner who has been hit hard by COVID-19 and looking for rental property funding, but you can’t (or don’t want to) deal with banks, alternative mortgage lenders can be the best answer to your problems.
But since not all money lenders are the same, working with a reputable mortgage broker will be your best bet.
The benefits are many, ranging from safer transactions, access to the best lenders, better rates and a faster process.
As we have explained earlier in our post, if you are a landlord trying to use your property as collateral, you might be facing some difficulties when trying to get a loan from banks during COVID-19.
Refinancing or getting rent relief will also prove to be difficult, or in many cases even impossible, and the process of submitting your application will be a headache.
By needing only your title of ownership in a property, we will not bore you with endless paperwork or long waiting times. After reviewing our offers, we will help you find the best mortgage for your situation.
Unlike conventional mortgages, your loan application will take less than 24 hours to be approved while funding could be received in less than a week.
Whether you are property owner preoccupied by mortgages for landlords, or a real estate investor looking for the fastest funding possible, don’t wait any precious time and contact us today. We’ll give you a free assessment right over the phone.
We would be more than happy to answer all your questions, and guide your steps towards the best financial decision to take for your peace of mind.
