There are many reasons to use private mortgage financing. The main one is obviously the refusal of the bank to grant you the coveted financing or the impossibility of having access to a favorable interest rate. What you need to know is that private lenders have much less restrictive selection criteria than banks, which allows them to grant loans to debtors with a financial history in line with the bank’s standards..
Although the interest rates associated with private mortgage loans are generally higher than those of the bank, the accessibility of this kind of loan still allows you to realize your projects. In addition, despite a high interest rate, the private mortgage still gives you access to a significant amount of funds.
Most private lenders are willing to provide financing up to 75% of the fair market value of your property. Some will go even further, but it all depends on the location of your home! In fact, these lenders prefer properties that are located in high density urban areas such as Montreal and its many suburbs adjacent to more remote areas of Quebec. These homes are often of greater value to the lender as collateral and that’s why locating them affects the percentage of financing you will be entitled to. This number can therefore vary between 65% and 80%.
It must also be said that in terms of private mortgage, the condition of the house given as security is of the utmost importance. The world of private lending is a way for individuals to create a profit by investing in a risky sector. If a private lender agrees to lend you money, you can be certain that he will want to guarantee the payment of his debt by any means possible. As your house will be taken as collateral, its physical condition will dictate the financing that the lender deems appropriate to grant you.
In other words, equity is the most important thing for a private lender and that’s why the condition of the house given as collateral is so important!
What are the eligibility criteria?
The terms on which you will obtain private financing differ from those of your financial institution, from the interest rate to the loan amount! As the private lender seeks to extract the maximum profit from his investment, the term of the loan granted will rarely be less than 6 months at an interest rate starting around 10%.
How much will a private lender be willing to finance? Each lender is free to set his own limits. However, investment groups specializing in mortgage lending offer loans ranging from $ 30,000 to $ 5 million. The amount you will be entitled to is an entirely different question.
The loan amount will be affected by the value of your home. This is why it will inevitably be subject to an evaluation and the lender will decide on the amount to which you are eligible in part on this expertise. The latter will consider a large number of factors in deciding your eligibility, including your ability to repay the loan based on your income history, employment and assets that you are able to provide as collateral.
One option that private lenders offer and which turns out to be very interesting is the repayment of monthly interest only. In this way, you will pay, by month, only the amount of the interest, while pushing the repayment of the capital at the very end.
In what circumstances should you use the private loan?
There is no point in hiding that private mortgages come with higher interest rates than bank loans. That’s why you have to be sure that the private loan is the right option in your current financial situation. Here are some situations in which it may be advantageous to take out a private mortgage!
– A bad credit score: The secret to getting financing from a financial institution is not so confidential: you need a good credit history. For the bank, this is the absolute measure of your trustworthiness and your ability to pay your debts to your creditors. For a variety of reasons, your credit rating may not be up to the bank’s standards, preventing you from accessing the coveted financing!
Fortunately for you, the credit rating is not sacred for a private lender as is the case for the bank. In the private sector, what matters is your current ability to repay your creditor, which is mostly determined by the collateral you provide. So, do not let your credit rating block the mortgage financing route!
-Refinance vote mortgage without penalty: Whether you’re trying to consolidate your debt, carry out construction / renovation projects or you need additional funds to support your family, mortgage refinancing has been the solution of choice for a long time. However, this operation is more complex than it seems at first glance. Indeed, some mortgage agreements come with penalty clauses if the contract is changed before its maturity.
This can quickly annihilate any financial benefit envisaged at the outset. That’s why many homeowners now choose to refinance their mortgage with a private loan. In this way, you will avoid penalties, and you will have access to funds much faster than with the bank. Private lenders refinance mortgages by granting first or second mortgages at competitive interest rates!
– Quick chat for a flip: Anyone who has already flirted with the world of real estate flips knows that time is a crucial factor to make a profit. Opportunities are limited in this sector and when the perfect house for a flip comes up, you have to act quickly. However, the bank rarely shares this willingness and your enthusiasm has no effect on the many diligent checks it must perform.
This process can sabotage your project and your dreams of a quick profit. This is where the speed of private lenders finds its relevance. Indeed, while banks are legally required to perform countless checks and tests before granting a loan, private lenders do not have the same legal requirements. That’s why they can give you access to funds very quickly so that your flip takes shape without delay! Do not let a golden opportunity slip through your fingers and enjoy the speed of private lending!
-Inadequate fundraising: What ordinary people commonly call a ” cashdown ” is an essential asset to obtain a bank loan. A minimum of 5% is required for homes valued at $ 500,000 or less. For a house worth between $ 500,000 and $ 1 million, you need to provide 5% down payment for the first $ 500,000 and another 10% for that amount. For any home worth more than $ 1 million, the minimum down payment is 20%.
You see that the bank is struggling with several legal limitations. The requirements mentioned above are only the minimum scales required by the Act. The bank may require a down payment greater than this minimum depending on your financial situation. If you are unable to raise enough money and the bank loan is not available to you, a private lender will be ready to finance you instead of the bank!
-Inadequate income with down payment: A down payment alone is not enough to be approved by the bank! You need a steady job and a steady income over a period of time long enough for the bank to approve you.
Again, turning to a lender could be a clever solution to your financing problem. In addition, with a large down payment, you will have access to a favorable interest rate and preferential payment terms. So take a sneak in the bank and their standards too high by contracting a private mortgage!
-You have made a personal bankruptcy: Although bankruptcy is sometimes the only viable remedy for your financial problems, the fact remains that it wreaks havoc on your ability to borrow. In addition to being posted on your credit file for several years, bankruptcy prevents you from accessing financing or credit cards for a very long time.
However, if your financial situation has quickly recovered after your personal bankruptcy, you might consider taking out a private loan! Since the bank will be cautious about supporting an ex-bankrupt, the private loan option makes perfect sense!
Start-up: This is a project that makes you dream of more than one! Being the owner of your own business and working on your own is just enough to motivate more than one aspiring entrepreneur to seek financing! However, starting funding for a business is just as complex, if not more than for residential mortgage financing.
You need a solid business plan and you need to provide market research that supports your claims for a possible realizable profit! With the bank, you’re not out of the woods! However, if you have equity in a residential home, private financing will be very beneficial! You will save yourself the tedious process of approval and can quickly focus your efforts where they are needed: put your business in working order!
-Financing the purchase of a residential building: Real estate is an investment method that has proven itself. Becoming owner of a housing building is one of those ways to smartly invest your money, but again, bank financing is not granted to the first comer!
So, if you come across a multi-unit property that you believe would prove a smart investment knowing that the bank will turn a deaf ear, turn to a private lender!
For what types of properties can you get financing?
Private lenders finance the same types of properties as banks. On the other hand, it is the conditions and the time at which they will be ready to finance you that differentiates them from your financial institution!
You will therefore be able to obtain mortgage financing for this type of property:
-A single family house
-A housing building
-A commercial building
-A secondary residence (eg a cottage)
As we have already mentioned, the location of your property is the nerve of the war in private lending! Lenders favor urban properties because of their often superior value and ease of access in the event of non-payment by you.
So if you have always dreamed of buying a residence on the lake or if you have always considered investing in real estate via a residential building, a private lender can lend you a hand in this approach!
The second mortgage with a private lender, an advantageous financing option?
The second mortgage bears such a name because of its place in the order of precedence of mortgage creditors. Bank mortgages are first mortgages, which means that the bank will be the first creditor to be able to exercise its mortgage remedy, ie take home as payment. Banks are therefore very reluctant to provide second mortgages because of the risk they incur.
In return, private lenders, while often offering senior mortgages, are much more likely to offer second mortgages than banks. Obviously, with a higher level of risk comes a rate of interest that reflects peril. While the interest rate for a senior private loan is around 9-10%, the second mortgage is more like 14%.
But is it a good financing option? Subject to your particular situation, the answer is often positive! The fact of giving your house as a guarantee of payment to one of your creditors gives you access to cash at a low interest rate. This is all the more true if one compares the rate of a second mortgage to that of personal loans or credit cards.
Putting a second mortgage on your house gives you access to larger amounts. This can be used to consolidate debts, renovate your existing property or buy a new one.
Before considering this option, however, you must be sure you can pay the payments in full every month because the possibility that your house is seized is indeed present! Rightly, both the bank and the private lender are entitled to take your house in payment or have it sold in court if you stop paying! You have been warned!
But in the end, is it advantageous to use the second mortgage! If you are aware of the risks and the rights of your creditors, such a mortgage can actually be a successful source of financing!
Can a private lender help you differently?
Mortgage financing and refinancing are not the only areas with which a private lender can help you! There are many situations where you will need money quickly and bank mortgage financing will be denied. In such circumstances, what can a private lender do to help you?
– Debt Consolidation Loan: Private lenders offer mortgage lending opportunities to help you consolidate your debts. This allows you to terminate default payments and thus stop damaging your credit rating further. Debt consolidation greatly simplifies the management of your finances and offers you an interest rate well below your credit cards or personal loans.
– 60-day notice : Such notice is a legal process on the part of your mortgagee to notify you of your default. This document also asks you to remedy the situation within 60 days otherwise this creditor will be entitled to seize your house in taking payment. When this happens, you need to act quickly to find the funds you need to repay your creditor. This is one of the situations where the private loan is the most useful. You will quickly have access to a sufficient amount to avoid losing your house to the benefit of the bank!
– Loan of construction: If obtaining financing to buy a house is already a delicate operation in itself, to obtain to build his own house is even more so. Banks have to follow a punctilious process that requires time, energy and expertise. In addition, your chances of returning home empty handed are very good. On the other hand, private lenders do not have the same reluctance regarding construction loans and will be happy to finance you if you set up a viable project supported by all the necessary expertise.
– Renovation Loans: Save yourself the long delays of the bank and quickly realize your renovation projects with a private loan at a competitive interest rate!
Far from being limited to mortgage refinancing, private lenders are willing to finance several types of projects! They are especially the perfect option to assist you when the bank will refuse you for the umpteenth time! Stop taking these refusals as the end of your journey and turn to private financing to realize your real estate dreams!
Find private mortgage financing fast with Bye Bye Debts!
You lack funds to complete a project? Your current mortgage rate no longer suits you or you want to take out a second mortgage? You came knocking at the right door! The Bye Bye Debts platform specializes in referencing experts from all sectors of the financial world.
Do not let financial institutions stop your real estate projects and deal with private lenders to realize your vision! Their services are customizable and much more accessible than those of the bank! So you decided to refinance your mortgage?