When searching for mortgage financing, there are many different types of mortgages available for the Ontario homebuyer. There are also many different types of lenders that are available in Ontario to help an Ontario borrower reach their mortgage and financing needs.
When it comes to the traditional big banks which are normally considered to be A lenders, the requirements asked of borrowers can seem daunting. The stress test that borrowers are put through can leave many unable to meet the stringent requirements of these Ontario based A lenders. Borrowers are asked to have very solid credit scores, demonstrate consistent credit worthiness and salaried full time employees with considerable assets are usually preferred.
As a result of this often narrow and hard to meet criteria imposed by the big banks, many Ontario homeowners who may want to obtain short term financing, or overall mortgage refinancing are left wondering if their mortgage and financing needs will be solved. First time Ontario homebuyers may also often be denied loans by the big banks as they struggle to meet these ever tightening rules imposed by A lenders.
Mortgage Loans From Private Lenders
Many may look at credit unions and trust companies, considered to be B lenders, as a possible alternative. These lenders may not require as high a credit score (Beacon Score), and may consider alternative sources of monthly income. However, Ontario borrowers still may be turned away. Credit scores must still be fairly solid and other criteria are often imposed, such as being able to demonstrate considerable assets to leverage mortgage loans against.
There are other funding options widely available in Ontario. Private lenders, considered to be C lenders, are well established in Ontario and will be able to work with you to reach your mortgage and financing goals.
At Mortgage Broker Store we have access to a wide network of reputable and experienced private lenders that can work with your mortgage and short term loan needs. We will be able to offer you valuable advice and lend out short term loans to help address some of your immediate financial requirements.
Private mortgage loans are structured a little differently than loans provided by A lenders. There are several characteristics that define a private mortgage loan. These loans are also based on criteria that are not so heavily dependent on credit worthiness. Let’s look at some of these key differences:
1. Short Term Mortgage Length- The vast majority of loans offered by the big banks tend to be first mortgages as they are deemed low risk financing for the banks. These loans tend to be long term amortized mortgages with term lengths of typically between 25 to 30 years. Unlike A lenders, private lenders typically structure loans to be short term. Term length of private loans tend to be between 6 month to 5 years depending on the type of loan that is being negotiated with the borrower.
2. Other Criteria is Considered for Overall Loan Approval- The narrow requirements
imposed by the big banks are based on overall credit worthiness and depend heavily on
traditional salaried full time incomes in order for borrowers to qualify for loan approval. Private lenders can offer short term loans based on other criteria such as alternative sources of demonstrated monthly income.
3. Higher Interest Rates-Currently the banks are able to offer very low interest rates attached to their primary mortgages. With the recent drastic cut in the Bank Of Canada lending rate, interest rates on some mortgages are currently at a historically low rate. These rates, however, are based on exemplary credit and salary. Private loans are in place to help those with credit issues. Although rates will be higher, financing is available to help borrowers that would otherwise be turned away.
4. Higher Fees-Just as in the case of interest rates being lower with loans offered by A lenders, fees associated with private mortgage loans will be higher.
5. Different Mortgage Loan Options Available-Flexibility is one of the major advantages that private lenders can offer the borrower. There are different private loan options that can be negotiated including consolidation loans, refinancing of primary mortgages, second mortgage loans, home renovation loans and equity home loans among some of the private loan options available.
How to Qualify for a Private Loan
To qualify for a private loan a private lender will be looking at different criteria than credit worthiness. It is important to do your research and when you are ready to sit down with a private lender you will need to bring the necessary documents to complete the process. A private loan is usually a straightforward and fairly quick process. A private lender will require:
1. List of All Current Assets- Any assets that you can provide will be calculated into the private loan amount negotiated. Provide your lender with a list of assets written down.
2. Proof of All Sources of Monthly Income– If you are self employed or a contract worker, a private lender will ask you to provide all monthly income sources including investment income and spousal/child support monthly income if applicable.
3. Higher Down payment- Poor credit is the primary reason borrowers may approach private lenders. To offset credit issues, private lenders will likely look to substantial down payment sources to reduce the overall amount of the loan which in turn helps to reduce the overall potential risk of other loans to the private lender.
4. Appraisals of Property a Primary Determinant- If you already own your property, a private lender will be carefully assessing the overall value of your property and will use a current appraisal to determine market value. He or she will determine the overall Loan to Value of your property (LTV). A LTV of 75% is the industry standard (75% of the appraised value of your property.)
A Loan-to-Value ratio for a property is equal to all mortgages on a property divided by the appraisal value of the property. If you own a home worth $1,000,000 and get a new first mortgage for $750,000 then your LTV ratio is 75% (i.e., 750,000/1,000,000)
Most banks and other A-Tier Lenders can loan up to 95% LTV provided that the borrower has a good income and credit score. Most non-bank lenders can lend up to 75% LTV but can overlook income and credit issues.
Private Mortgage Lending Rates in Ontario
In Ontario, private lenders will offer rates that are within a predictable margin. Private lenders will charge typically 7% to 15% on loans depending on the type of loan being negotiated. The interest rates will depend primarily on the private lenders overall assessment of your property value.
The Loan To Value (LTV) will be calculated which will determine the amount the private lender will approve. Generally an Ontario based private lender will not leverage more than 75% LTV which represents 75% of the current appraised value of your property. For example, if your property is appraised at 100,000, your total loan amount will not exceed 75,000 dollars, which represents 75% of the value of your current property. Click on the link below to further illustrate:
Private Mortgage Rate Estimation-Tool
Fees charged by private lenders will generally be higher than those charged by the big banks. Private loans by nature are deemed higher risk and will be determined by the complexity of the particular private mortgage loan including any possible legal issues that come into play. Private lenders will generally charge between 4% to 6% of the total loan amount in set up fees.
Are There Real Private Lenders?
In Ontario there are many well established and highly experienced private lenders that will be able to help you. Private lenders are expert in assessing credit issues and providing financing based on other factors that can be put towards many uses including paying off student debt, renovations, refining primary mortgages or taking out second mortgages to help pay for short term financing goals.
Mortgage Broker Store can help you access these private lenders and facilitate your mortgage financing requirements. We can sit down with you and answer any outstanding questions you may have. Setting you up with potential private financing will give you more short terms options while you work to restore your overall credit standing.