Private lenders can be the perfect solution for property owners who want financing quickly for a variety of reasons. These alternative lenders are individuals and or companies that work independently of provincially and federally regulated bodies like trust companies, credit unions, and banks.
These lenders cater to a specific clientele and offer an alternative to traditional lending routes. Homeowners may turn to private lenders for a variety of reasons, including facing foreclosure or power of sale, dealing with unexpected expenses like costly renovations or natural disasters, or owning unique properties in less desirable locations. These factors make finding a credible private lender essential for streamlining the selling process.
Private lenders take a different approach than traditional lenders, focusing on existing equity and appraised property value rather than credit scores and reports. In this article, we’ll explore common scams and frauds to watch out for when dealing with private lenders, as well as essential characteristics to look for in reputable lenders.
Common Traits of Reputable Private Mortgage Lenders
Here’s a few of the characteristics that you should be looking for in one of these alternative lenders. These can help you find the right private lender that will suit your needs.
Communication is Key
Any private lender that you’re considering dealing with should be responsive to any questions you have. Any fees and costs should be clearly laid out at the beginning of the process.
The Private Lender Should Have An Excellent Reputation
Check out any client testimonials on the website of the lender you’re thinking about using. These are credible when they have pictures and or names attached to them. If you can find Google Reviews, that’s another excellent way to determine if the lender is credible.
Contact Details Matter
Having the right kind of contact details should make a big difference before you make a final selection. Good private lenders will have snail mail addresses as well as email addresses and phone numbers that you can use.
You should also look for a reference that tells you they have the money on hand to complete the transaction. If they’re open to answering questions and have a free consultation process, the chances are they are a transparent company looking to land your business.
Please read on to find out about the requirements that make these lenders different from more traditional routes.
Private Lender Requirements
Private lenders are like banks. They want to lessen the risk as much as possible before they approve an application. However, they take a slightly different approach. Institutions like banks and credit unions rely heavily on credit and credit reports. Private lenders on the other hand take a look at the existing equity you have and the appraised value of your home condo or cottage. One of the other metrics they use is called the loan-to-value ratio. This metric applies if you’re looking for a private loan in Oshawa, Ajax, Richmond Hill, Toronto and many other places.
Here is how that all-important formula works.
The amount of money requested for a mortgage from a private lender is divided by the appraised value of the property and expressed as a percentage point. Private lenders don’t go over 75% LTV for applicants who don’t meet more traditional criteria.
With all this information, you can make a decision about using a private lender. Like every other industry, you’ll need to know what kind of scams and frauds to avoid.
Common Scams and Frauds To Avoid When Dealing With Private Lenders.
It’s an unfortunate fact that private lenders aren’t free from those who would scam the public. Here’s a few red flags that you need to watch out for.
- The Fee Collector. Watch out for the bad actors who charge up front costs. The red flag occurs when a disreputable lender is charging you up front fees without telling you exactly how and when your loan will be processed
- Watch Out For Guaranteed Approvals. Legitimate private lenders will put together the information they need before processing a loan. However, that doesn’t mean you cannot get approved for a loan even if you have bad credit.
- There’s No Physical Address. Another red flag is a business that doesn’t have a physical address. Watch out for a P.O. box when you check the company out on mapping software. Another easy way to check on the credibility is to phone the number on a website.
- The Website Isn’t Secure. If you’re looking for a quick sale on any type of property, you need to watch out for scam websites. A padlock icon in the web address should appear in your browser. You should also look for “https” in the url.
It’s also a tipoff you’re dealing with a scammer if correspondence is full of grammatical and spelling errors. Mortgage Broker Store is a credible business that exceeds our client’s highest expectations for reputable work. We look forward to answering your questions.