There are times in life when it is beneficial to have access to funds quickly to address pressing financial obligations. The need for fast funds can range widely from having to cover the cost of home renovations or fix-ups to needing to pay off high-interest debts such as credit cards.
If an Ontario homeowner has fallen into mortgage arrears due to unforeseen financial circumstances including a job layoff, accessing funds quickly to pay off the arrears owing on the mortgage should be given top priority. Any legal costs can also be covered which will help put a mortgage back into good standing.
Although there are many lending options in Ontario that will enable a homeowner to access the equity in their home to provide the funds for differing financial reasons, many may wonder what options are open for those with poor credit or insufficient income. Won’t the banks require strong credit and substantial income?
The answer is that with the banks, good credit is imperative for mortgage approval. Other lending options do exist and should be considered, namely private lending options. Private lenders will enable Ontario homeowners, regardless of income and credit, to utilize home equity to pave the way towards paying off short-term liabilities and help address short-term financial concerns.
With a newfound appreciation for many Ontario homeowners during 2020 and into the fourth quarter of 2021, it may be tempting to access this existing equity sooner rather than later and put it to good use to ease the current financial strain. Houses across the GTA have appreciated as much as 31% throughout 2020 and throughout 2021, according to the Toronto Housing Report. Don’t let poor credit stand in your way of tapping into this equity gain.
Private lending options In Ontario and How Do They Operate?
The reality is that an Ontario homeowner with damaged credit will most likely be turned away from the banks. This does not mean it is the end of the mortgage road.
There exist numerous well-established and experienced private lenders throughout the Province who will be able to offer second mortgage options. They can do so by leveraging a mortgage loan on a thorough appraisal of your home. They can do so quickly and in a straightforward, uncomplicated process.
A Mortgage Broker can pinpoint your financial needs and steer you towards an applicable private lending option. We can also directly negotiate a private second mortgage loan directly depending on your unique financial picture.
To help better understand what the role of a private lender is, it would be beneficial to have a clear picture of the types of lending options available to an Ontario homeowner. Lenders in this Province fall into one of three categories:
A lender– The Banks which require at least a credit score of at least 650 and substantial household income to qualify for most mortgages. Homeowners, borrowers are also put through rigorous mortgage stress tests to qualify for a bank-provided mortgage.
B lenders- Trust Companies and Credit Unions which require at least credit scores of 550 (some may accept as low as 550.) These lenders are also expecting substantial household incomes and additional financial assets to qualify for mortgage financing.
C lenders– Private lenders which can provide mortgage financing despite poor credit and non-traditional household income such as freelance, contract-based or self-employed.
Banks (A lenders) will require credit to be in good standing and prefer substantial and straightforward-to-calculate yearly income. When making the decision to sit down with a private lender it is beneficial to understand what types of private lending options are available and what criteria private lenders base their lending decisions on.
Generally, there are three types of private lenders:
- Private lenders that have substantial capital to loan out and do so individually. These private lenders will often work with an established mortgage broker and a real estate lawyer to ensure that contracts are carried out under the mortgage rules in the Province.
- Private lenders that lend out as part of a group of private lenders. These lenders will work as a team of lenders and also will seek the services of real estate lawyers and mortgage brokers to help with contract details and legalities.
- A mortgage broker that specializes in private lending. There are Ontario mortgage brokers that, along with working with A and B lenders, are well-versed in negotiating private mortgage financing and can recommend other private lenders they are associated with.
What Criteria are Private Lenders Looking For?
The good news is that private lenders are able to overlook credit and type/amount of household income. This is possible because private lenders base mortgage financing on the property itself. Your home is used as leverage for the loan, in other words.
To mitigate risk and assess your home’s overall value, a private lender will study carefully a recent appraisal of your property. He/she will look at different variables to come determine the Loan-to-value (LTV) which will in turn determine the amount of the mortgage loan. Generally a private lender will not lend beyond 75% LTV which translates as 75% of the appraised value of your home. For non-urban locations the LTV will more likely be up to 65% of the value of the property (or 65% LTV).
A private lender will be looking at:
- The appraised value of your home
- The location of your home
- The current state of the property which will take into account any renovations to increase market value and conversely any fix-ups needed on the property
- A private lender will also assess the degree of equity in your home- You will need to demonstrate more than $70,000 in equity
The Main Advantages to Private Mortgage Financing
Beyond the obvious advantage of approving mortgage financing in spite of credit issues or low household income, seeking the services of a private lender has additional perks which include:
- Private mortgage loans are short-term. They provide for much needed funds to ease financial strain while also enabling a borrower/homeowner to increase their credit score if the loan is paid in full and on-time every month. Creditworthiness can be reestablished with access to a short-term loan option.
- Private mortgage loans are negotiated quickly – Unlike the banks which can take up to 3 weeks or more to process mortgage loans, private loans have same day approval and much shorter processing times of one to two weeks at most.
- Private loans are processed in a straightforward manner – The overall process is uncomplicated and processed with ease for the borrower/homeowner.
Mortgage Broker Store Can Help with Second Mortgage Options
With access to a broad network of well-established and experienced private lenders throughout the Province, Mortgage Broker Store can connect an interested homeowner to private lenders to discuss various refinancing options. We will also be able to negotiate private financing directly, depending on your specific financial objectives. Poor credit and non-traditional income need not be a barrier to obtaining a bridge loan or any other loan to help pay off any pressing monthly liabilities. Don’t hesitate to contact us at your convenience to discuss the best options to suit your unique financial needs.