Working with a mortgage broker is a different experience than working with a bank specialist. It’s also a different part of the home buying process compared to working with your Realtor. Some people may have never worked with a mortgage broker before and don’t know what to expect. Because of that, there are some questions…Read Article
When You Should Consider Getting a Private Mortgage
If you’re going through the process of getting approved for a mortgage right now, you may have heard of private mortgages. It’s an option more and more Canadians are turning to due to their situations, needs and the qualification process.
In this article, I will explain this type of mortgage and when you should consider getting a private mortgage.
What is a private mortgage?
Private mortgages have been around for years, but they were often reserved for people who had credit or debt issues and needed added options to turn their situations around. And, while this is still the case for those with blemished credit or carrying a lot of debt, it’s for a lot more people nowadays. If you’re self-employed, building a new home or have been declined at multiple other banks, you’ll also appreciate private options now more than ever!
When qualifying for a mortgage, most of the traditional lenders are considered “A lenders”, then you will get into “B lenders” and then you will get into “private lenders”.
As a mortgage broker, I have access to a wide variety of mortgage options from a large list of lenders. I can offer different solutions catered to your specific situation. This means that if you don’t qualify for a traditional mortgage, you still may have options.
What is the difference between a private mortgage?
Private mortgages will have higher interest rates. That is the biggest thing that clients will notice. Private mortgage lenders in BC are lesser regulated mortgage lenders. They are a great option for those people who still want to purchase a home but don’t qualify through A lenders or B lenders.
The second big difference is the fact that private mortgages are considered “open loans.” This means that they are usually super flexible with negotiating terms. You will see private loans sometimes become “open” after 3 months, which means that there are no penalties to paying off the mortgage early.
The third thing that I see is clients using private mortgage loans until they are able to be approved through a B or A lender. Once this approval happens, clients can refinance and pay off the private loan, resulting in a lower interest rate with an A or B lender.
When should you consider getting a private mortgage?
Like I mentioned above, there are so many reasons why you may want to consider getting a private mortgage. Here are a couple of the most popular reasons why I would suggest a private:
- You’ve been declined through A and B lenders and are still looking to purchase a home.
- You’ve had bad credit in the past but are working towards fixing it.
- You don’t have 2 years of self-employed income history yet.
- You are looking to build a new home.
- You’ve had a past bankruptcy or consumer proposal
- You’re looking for a shorter application process and an easier qualification process
- You’re in need of emergency funding in a short period of time
- You have the need for a 2nd or 3rd mortgage for investment purposes
These are just a few of the reasons why I see people switching to private mortgages in Canada. There are more reasons and based on your situation, I may suggest a private mortgage once we speak.
How do private mortgages work?
Private lenders typically require at least 20% or more equity in your existing property if you are looking to refinance or 20% or more down payment if you are looking to purchase.
Before I get started on suggesting a private mortgage option to a client, I will ensure that there are no better options for them. This happens through my approval process, credit check (if needed), income verification and assets/possible co-signer. This may sound like a lot of stuff, but it’s actually a pretty quick process. We can chat on the phone and I’ll let you know everything I need or I’m happy to meet locally in Kelowna.
I do this first because there may be other scenarios to explore as it depends upon each client’s situation. It’s important to remember that just because you have been declined at one bank or mortgage broker does not mean you will be declined for a mortgage when you work with me.
I’ve worked with my fair share of files where a client has been previously declined somewhere else, but I was able to get them a mortgage through a B lender or through a private mortgage.
Is this your best option for getting approved?
Does considering a private mortgage sound like the best option for you right now? If you’re considering it, please reach out to me today. I can go through your situation and offer my best advice and suggestions for you.