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What Is a Private Lender?

What is a Private Lender in Ontario?

A private lender is an excellent alternative for someone who doesn’t qualify for a loan through a more traditional Institution. These alternative lenders are financial entities or individuals that aren’t restrained by the same provincial and federal regulations like trust companies, credit unions and banks. They can help you sell quickly. It doesn’t matter where you live. A private lender works with clients in Mississauga, Scarborough, Markham and Oshawa and other cities and towns across Ontario. 

Government statistics report these types of non-bank mortgages were worth $58.7 billion in the fourth quarter of 2021. 

A private lender can finance a loan and provide a mortgage to borrowers who don’t qualify from banks.  There are several reasons people find themselves in the category where they want to sell a home fast or get one of these loans including:

  • They’re going through a power of sale or foreclosure.  The power of sale is the more common technique in Ontario. At the end of this process is an Eviction Notice where the lender or bank can evict occupants and sell the house.  A foreclosure is different.  it usually takes longer than a power of sale. With a foreclosure, the bank or lending institution takes title to the property. They keep all of the proceeds above what was owing on the mortgage for themselves.
  • Another reason people apply for a private mortgage has to do with the spiraling cost of a renovation that’s gotten out of hand. According to the reputable site HomeAdvisor, a kitchen remodel can cost upwards of $21,000. 

Some of the other reasons to apply for a private mortgage include paying tuition fees for University or College, paying off high interest credit cards fast and covering expenses after a work layoff.

Understanding how to qualify for one of these loans is important under these circumstances and others.

How To Qualify For Private Mortgage Lender Loans 

These loans are easier to qualify for than their more traditional counterparts. Private mortgage lenders usually approve loans for homeowners who have at least 25% available equity. Because equity is an important part of the process, many private lenders will ask for a home appraisal.

Appraisers will focus on a number of different factors to arrive at your home’s value. They can help when you want to sell a house or sell a condo fast. They include factors like:

The Amenities 

This includes all the things that make up the building itself. There are a number of different items included here such as living areas, bathrooms and the size and number of bedrooms. These are all important when you’re looking to sell. 

The state of repair of the house itself is also factored in. The same can be said of the appliances and utilities and the condition and size of the outside features like parking, roofing and the yard.

Keeping all of these different features in the best possible shape is in your best interest before an appraisal. They help when you want to sell a house or sell a cottage fast. 

Other Appraisal Factors 

Some of the other factors that get considered include trends in the real estate market or market conditions. Here are some of the numbers for February 2023 in Toronto. 

Comparing the property that’s being appraised to a comparable home or condo in the area is another way to arrive at a value fast. Of course, one of the most important factors is the location. 

Here are a few other things you can add into the mix when you’re putting together a pre-appraisal checklist.

  • You should include all the improvements you’ve made within the last 15 years.
  • A property survey also helps mark out the boundaries. 
  • Add in any previous appraisals. This can help an appraiser understand how the value has fluctuated over the years.

These are good ways to get started toward approval for a private mortgage loan. It’s important to remember that private lenders often work with mortgage brokers to finance a condo or cottage.   

These lenders have their own set of criteria that’s a little different than more traditional banks, credit unions and other institutions. 

Private Mortgage Lender Loans Criteria  

Private lenders look at the market value and any existing debt on a home or other property when deciding to approve a mortgage. Banks tend to put a heavy emphasis on your credit score.

 Private lenders rely more on a metric called the Loan To Value Ratio (LTV). The LTV is calculated by dividing the value of existing mortgages by the market value of the property. So, a house that has a market value of  $1 million and existing mortgages worth $750,000 has an LTV of 75%. Most alternative private lenders won’t approve mortgages on residential properties if the LTV is over 75%.

Some potential applicants wonder about their chances of success if they have a dented credit score. 

What About Poor Credit and  Private Mortgage Loans? 

Although a credit score isn’t as important with private mortgages and loans, it’s still a factor you need to pay attention to. The numbers generally are ranked between 300 and 900 and they help to determine your creditworthiness. The poor credit range according to Equifax generally falls below 560. 

Fixing A Broken Credit Score 

Repairing a credit score means taking several steps. You will want to request your report every year so you can correct any errors. Take out a loan or credit card to build up a credit history if you don’t have one. It’s also a good idea to keep your credit card balances below 50% of the limit you’re allowed.

Most traditional lenders like to see the scores as high as 660 or up. It’s good to know that private mortgage lenders accept lower scores since they focus on different criteria like the ones above.

Different Fees and Interest Rates From Private Lenders 

As a result of the increased risk involved, private lenders have different fees and interest rates whether you want to finance a cottage or other property.  For example, they usually charge between 8% to 15% depending on the prevailing economic situation, as well as the individual applicant and their equity.
Private mortgage lenders can help when you’ve been turned away by a more traditional bank, Credit Union or other lending institution.

One of our primary focuses is hard to place loans and mortgages that don’t meet traditional requirements. We are direct private lenders as well as a team of brokers and licensed mortgage agents. Our mission is to help you sell quickly if need be.

Remember Mortgage Broker Store is also one of the companies that buys houses for cash in the GTA. There’s no commission and no real estate agent when you take this route. We buy houses for cash and supply no obligation offers in as little as 24 hours.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.

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