Situated in picturesque Southwestern Ontario and roughly 250 km from Toronto, Chatham is a historical town in a mostly rural setting. With many opportunities for outdoor activities and a quiet lifestyle, many have chosen to call Chatham and the surrounding area home. With a population of 105, 529 as of the latest 2017 population consensus, there are different housing opportunities for those interested in buying into the thriving Chatham property market.
Local real estate statistics mirror the noticeable gains in both housing sales and proprietary appreciation over 2020 and into the first quarter of 2021. All over Ontario, we have seen a flurry of housing activity despite the limitations and lockdowns of a pandemic that is dragging out.
According to the Chatham-Kent Association of Realtors, March 2021 saw a 75% increase compared to March 2020 and represented the highest level on record in this region for any given month. The average price of a single detached dwelling also jumped to an unprecedented selling price of $419,577. This represents a 56.2% increase from March 2020.
To profit from such gains in the property market, unless an all-cash offer is possible, a buyer/homeowner must be able to qualify for mortgage financing for either a principal mortgage or a second mortgage type using existing home equity.
Private Lending Options In Chatham
What if credit is an issue? Although there are many lending opportunities within Ontario and the Chatham-Kent region, many are denied mortgage financing if a credit score is too low. The mortgage industry classifies Ontario-based lenders into three broad categories which are defined as A, B, and C lenders. A lenders are the banks. B lenders are credit unions and trust companies.
The third classification of lenders is private lenders. Private lending opportunities exist in Chatham and may lend mortgage financing individually, as part of a group of private lenders or a mortgage broker can specialize in private mortgage financing. Unlike the banks ( A lenders) that require very strong credit and B lenders that have fairly stringent lending criteria, private lenders will be able to look to other criteria when approving mortgage financing and not rely so heavily on creditworthiness.
For private lenders to offer private secured mortgage loans, your home will be assessed in terms of the existing equity and the appraised value and this will be the main determinant in offering mortgage financing. It is however important for a borrower/homeowner to understand the part that credit plays in the lending process.
The Role That Credit Plays in Private Mortgage Loans
The credit score. By assessing a borrower’s credit score the banks are essentially analyzing what degree of risk any given individual represents when it comes to recouping the lender’s money. The credit score in the lending business tells the story. It represents essentially a snapshot of the lending history of an individual and his or her reliability and consistency in terms of repayment.
Generally, a bank will be demanding a credit score of higher than 600 with preference given to 650 and above. Other lenders will have less stringent credit criteria. Trust companies and credit unions will accept credit scores of 550. Private lenders will be able to loan despite credit low credit scores and poor credit.
Regardless of the type of financing, borrowers/homeowners should take the necessary steps to improve the credit score.
- Try to pay down high-interest debt if you are able.
- Make an effort to always pay any liability payment on time and in full if possible. The better your credit, ultimately you will secure the most favorable terms on the final secured mortgage agreement.
What Steps Can Be Taken Before Applying For a Private Mortgage Loan?
- Consider a pre-approval if you are applying for a principal mortgage.
- Be very familiar with your credit score and credit report.
- Research private lending options in your area.
- Arrange to sit down with a private lender.
- Know what type of loan you feel would address your short-term financial needs.
- Gather all relevant paperwork.
- Bring a recent appraisal and proof of the degree of equity in your home if you are a current homeowner and looking to secure a second mortgage loan option.
What Criteria are Private lenders Assessing When Determining Mortgage Loan Eligibility?
A private lender will weigh private mortgage financing on criteria which includes:
- The Loan-To-Value (LTV) by assessing a recent appraisal of your property
- The overall debt ratio of a homeowner/borrower and any existing assets
- The degree of equity that exists in your home. Generally, a private lender will prefer to see at least 25% equity built in your home.
When assessing private financing a private lender will not lend over 75% LTV (which represents 75% of the appraised value of your home). For example, if your home is worth 900,000 dollars then a private lender will not lend more than $650,000 which represents 75% of the total value of your home. Private lenders will also take a look at a borrower’s credit and salary. Damaged credit however will not stand in the way of private mortgage financing.
The Interest rates charged by private lenders tend to be higher than the rates the banks routinely change. Banks can afford to do this because mortgage loan approval depends heavily on near-perfect credit. If your credit is poor, private loans are available to provide short-term mortgage financing. Interest rates will be between 7% to 12% with any associated fees ranging between 3% to 6% of the final cost of the loan.
What Types of Private Mortgage Loan Options are there?
- Home Equity Line of Credit (HELOC)
- Home Equity Loan
- Home renovation loans
- Bridge financing
- Negotiating new terms on your principal loan
- Debt consolidation loans
Mortgage Broker Store Can Direct you towards Suitable Private Mortgage Options
At Mortgage Broker Store we have access to a network of established Chatham-based private lenders. We can determine the type of mortgage financing that will suit your financial objectives. We will be able to point you in the direction of a private lender to help negotiate terms on a secure mortgage loan option.
Poor credit does not have to stand in the way of securing mortgage loans. Whether you are seeking a first mortgage to purchase a home or would like to tap into the existing equity in your home, private lending options are available to help make these mortgage goals achievable.