Kingston is arguably a tourist-based city with a wide range of attractions to wow the visitor. Nicknamed the Limestone City based on the number of historic buildings that dot the city center, Kinston is also blessed with beautiful surroundings.
Resting on both Lake Ontario and at the mouth of the famous Rideau Canal and within a short drive to Ottawa and Toronto, Kingston is positioned enviably. With a current population of 590,490, Kingston is both a beautiful place to explore and a great city to reside in.
Recent real estate numbers have reflected this reality. With the price of a single detached dwelling rising to $350,000 and a flurry of activity in housing sales, Kingston is a desirable location to buy property. The average house price has increased by an astonishing 150.9% in the first quarter of 2021. Houses continue to fly off the market with an average number of just one day on the market from listing to sale.
With housing numbers such as these, many may be trying to profit from the housing upswing by taking out secured mortgage financing to buy property. While an obtainable proposition for those that have exemplary credit and relatively low debt ratios as compared to household income, those with poor credit may be looking around for options to achieve mortgage financing.
Although there remain many lending options open to both first-time borrowers and existing homeowners, the options are narrowed when credit remains an issue. In Ontario, there exist three categories of lenders based primarily on credit standing and debt levels of borrowers:
- A Lenders – These lenders are represented by the banks. These lenders have very stringent criteria when it comes to mortgage financing. Banks will be looking for near-perfect credit, substantial, easy to calculate yearly income, and low debt ratios. Borrowers will have to pass mortgage stress tests that have as of June 1, 2021, been increased.
- B Lenders – These lenders are made up of Credit Unions and Trust Companies. While slightly less stringent than their bank counterparts, B lenders still require a credit score of at least 550 which means strong credit is still necessary. Credit unions also prefer easy-to-calculate and substantial yearly income and low debt ratios to approve mortgage financing.
C Lenders – There exists other lenders in the Province that are Private lenders (C lenders). A private lender will be able to overlook damaged credit and high debt ratios and look to other criteria to approve private mortgage loans.
How Are Private Mortgage Loans Structured?
Private mortgage loans are structured differently than long-term amortized mortgages offered by most banks in two major respects:
- Private loans are negotiated quickly and the process is straightforward. A private lender can provide secured mortgage loans faster than the banks/credit union. The loan process is simple and will be finalized quickly.
- Private mortgage financing is on a short-term basis – Typically a private mortgage will be structured as a short-term loan with between 1 to 3 years being the preferred length. By providing short-term mortgage financing, a borrower will have the opportunity to restore credit and prove a reliable payment history which will in tum increase the overall credit score for future mortgage loan applications.
Private lenders will base their calculations predominantly on the appraised value of your property. These lenders will not lend out more than 75% of your property’s current value, which is referred to as a 75% Loan-To-Value (LTV). A private lender will also prefer to see 25% existing equity in your home.
A loan with a higher than 75% LTV is deemed high-risk for a private lender. The job of a private lender is to try to mitigate risk while providing short-term financing for those that may have been turned away from the banks due to credit issues/debts.
What about the fees and Mortgage Rates? Although banks may be able to offer very competitive rates which are currently historically low, they are basing their loan calculations on exemplary credit, substantial income, and low debt levels in potential borrowers.
Generally, a private mortgage lender will attach an interest rate of between 7% to 12% depending on the borrowers/homeowners’ overall financial picture. Fees associated with private loans tend to range between 3% to 6% of the total cost of the mortgage loan.
Steps To Take When Preparing For Private Mortgage Financing
When a borrower/homeowner is contemplating different private loan options there are benefits to researching private lending opportunities and being very clear about your short-term mortgage goals. There are things that you can do before sitting down with a private lender that will best prepare you for negotiating terms on a private mortgage.
- Research good pre-approval rates.
- Gather all paperwork necessary including proof of income, investment statements, and proof of assets.
Obtain a recent appraisal of your property if you are looking for a second mortgage loan option.
- Be clear on your mortgage loan objectives ( are you looking for funds to renovate, consolidate debts or maybe buy an additional property)
- Know your credit score and try to increase your credit score before seeking pre-approval
- Be in contact with a mortgage broker for direction
Mortgage Broker Store Will Help Direct You Towards Private Mortgage Options
If you are a Kingston homeowner or a borrower that would like to obtain mortgage financing, don’t let credit issues stand in your way of purchasing a home or taking out hard-earned equity from your property to pay for needed expenses.
Mortgage Broker Store has access to a broad network of private lenders in the Kingston area. A private lender will be able to sit down with you and discuss your options directly which will help you achieve your mortgage goals.
We are in a position to look at your unique financial circumstances and advise as to the best private loan options and lenders that will be able to handle your financial objectives directly.