It is a fact that Canadians have started relying more on Alternative/Private Mortgage lenders rather than going to the public authorities. As the regulations in Canada are getting stricter and mortgage guidelines are getting tighter, the lending gap is getting affected making many would-be homeowners disappointed.
Alternative/Private Mortgage impose the same set of rules as many banks do. However, yet in the case of Alternative/Private Mortgage, these parameters are less rigid and offer creative scope for different financing scenarios. There are many cases that one cannot categorize according to the set standards where there is no scope for any compromises. These set standards are hardly updated and considering the huge numbers of banking institutions in Canada, there is no wonder if it becomes hard for authorities to adapt to changing demands. However, nimble or small mortgage financiers are exceptions to it. They are ready to adapt to the customer needs rather than convincing customers and their dreams to follow a set of rigid rules.
Canadians looking out for Alternative/Private Mortgage not only for mortgage financing but also for refinancing services. Realm estate enthusiasts are willing to leverage the increment in the home equity to add to their detached properties. This is another service that traditional lenders might not offer as the guidelines don’t allow them.
Common private lending scenarios
Usually, traditional banks demand you to go through an extensive documentation process to understand your capacity to repay the loan. Many people get ruled out at this very stage. To understand it, for example, a self-employed mortgage applicant will not necessarily have T4 forms, regular pay stubs or minimum of 2 years of being self-employed (which traditional lenders usually require). This sometimes leads to disqualification. These applicants usually belong to the following scenarios.
- Second mortgage
- Rental investment properties
- Multifamily properties
- Non-residents
- Self-employed borrowers
- Unverifiable income
- Low credit score
- More debt load than banks’ adaptability criteria
- Vacation homes, etc.
Interim financing
Here is what Alternative Lender/Private Mortgage. A mortgage prospect is almost done with the construction of a new home, and now facing budget constraints. The bank which had provided them with a mortgage for the house has now rejected their request for more funds. How can they complete the remaining construction without the bank’s help? They can take help from Alternative Lender/Private Mortgage
Alternative Lender/Private Mortgage restrictions and requirements-
Most of the time, Alternative Lender/Private Mortgages have expertise in or handle a particular market niche and they prefer to deal in the same. A lender will take only home construction projects and it has expertise in construction financing. Sometimes lenders operate only for a particular geography. There is no one standard lending policy across the world that private lenders have to follow. No particular policy regulates them. Private mortgage lenders set their own rules. Here, borrowers are suggested to associate with those mortgage lenders which fits their objectives and the given scenario. This way, applicants can get more favourable rates and terms.
As far as the performance and qualification criteria are considered, private lenders are more flexible as compared to banks. When you associate with private lenders, you have to go through less documentation and less strict measures. Your employment details or credit history are not as crucial provided you ensure that you have enough financial assets to repay loans successfully.
One more requirement applicants usually have from private lenders. It is about having a robust and smooth exit strategy.
Some common exit strategy examples include:
Renovate the property and resell.
Use a vacant plot to develop a home and refinance
List another property for sale and get interim financing.
Wait for Inheritance.
Alternative Lender/Private Lender fees-
As private mortgage lenders are taking a higher risk by approving finance at relatively less strict regulations and eligibility criteria, they charge higher interest rates. These charges vary from lender to lender. The higher the risk, the more can be the charges.
As the interest rates are growing, so are the mortgage regulations in Canada. This is forcing many Canadians to let go of house ownership. This is making them turn to private lenders. These applicants are from all kinds of economic backgrounds. Some are self-employed, some have unverifiable income status, some are already in debts, etc. What makes these people go for Alternative Lender/Private Mortgage is the faith that they will be able to leverage the expertise and flexibility offered by private mortgage lenders.
