It has been getting harder to get a mortgage in Niagara Falls and throughout Ontario, as banks have increasingly instituted tougher rules in recent years. Through credit score alone, most individuals will not be approved for financing from banks. Aspiring homeowners, looking to buy a home in Niagara Falls or a neighbouring community like Grimsby, will likely need to look for alternative lenders.
One of the most popular alternative lenders that borrowers can turn to is private lenders. Private lenders are individuals or companies who offer lending services to borrowers. Private lenders are less regulated and so they specialize in servicing borrowers that most banks would reject. Banks in Niagara Falls are reluctant to provide mortgages to people with a low credit score, which is considered any score under 620 out of 900. If you didn’t qualify for a bank loan, you might still be able to get the home you want in Niagara if you work with private mortgage lenders.
Mortgages & Loans from Private Lenders in Niagara Falls
Private lenders can offer loans as low as $30,000 and loan terms as short as one year unless the borrower requests otherwise. For riskier mortgages where the borrower needs a second mortgage or has no income, private mortgages will have fees that are higher than a regular bank loan. Private mortgage lenders generate income by investing in the lucrative real estate market by offering loans to homebuyers and homeowners in cities like Toronto and Niagara Falls.
Private lenders are attracted to Niagara Falls because of its growing real estate market. In June 2022, the Niagara Association of Realtors (NAR) reported that the composite year-to-date price of a home in the region had surpassed $800,000, appreciating more than 20% from the first half of 2021.
Private lenders in Niagara Falls prefer offering registered mortgages secured by real estate.
This reduces the risk they face, as they will be legally allowed to sell the borrower’s property to get their money back if the borrower fails to make payments. The Ontario Mortgage Act states that a lender can use the legal process known as “Power of Sale” to seize and sell property that has a mortgage on it if the borrower neglects their obligations in the mortgage agreement.
How are Private Loans Used for Bad Credit?
Banks place a high value on credit scores and will not lend to those deemed to have bad credit. Private loans may be the only way some people can get financing if they have a low credit score.
Borrowers with bad credit can work with private lenders to access financing options for a wide range of uses from purchasing a home by getting a bad credit mortgage to paying off debts with a debt consolidation loan or even funding personal investments. Bad credit borrowers can get the same loans as regular borrowers but through a private lender instead of a bank.
Approval Criteria for Private Lender Mortgages
Private lenders want to know the market value and total debts on a property before approving loans. Banks consider credit scores when choosing to approve financing but that is not a factor for private lenders who have other criteria to determine who gets approved.
A private lender will divide total debts by the appraised value of the home to get the loan to value (LTV) ratio. A house with a market value of $1,000,000 and debts totalling $800,000 will have an LTV of 80% and most of the private lenders in Niagara Falls will not lend to the property with an LTV ratio that is greater than 75%.
There is a huge risk the lender takes when they lend to people with bad credit so private lenders take extra measures to protect themselves. This is why private lenders charge higher rates of interest to their borrowers than a bank will. They’ll also usually charge a small upfront fee of $500 to $675 in order to pay their staff to process paperwork.
Common Reasons for Getting a Private Mortgage
While applying for a private mortgage you will be asked to state your reasons for applying for the loan. They are usually very lenient compared to banks and will accept most answers. Some of the most common reasons why people work with private lenders include:
- To pay tuition fees for college or university
- To pay for home repairs or upgrades
- To stop a power of sale or a foreclosure
- To pay off debts
- For living expenses after being laid off from work
- Not having a stable or easily verifiable source of income
- Being self-employed
- Not qualifying for loans offered by banks and other financial institutions
Private Lending Services in Niagara Falls
The most common private lending services in the Niagara region are:
Debt Consolidation. Here a borrower takes out a loan with the purpose of using it to pay off all their existing debts. While they still owe the same amount, they now only have to pay one lender and one rate of interest. A debt consolidation loan from a private lender will often have much lower interest rates than credit cards, helping the borrower save money and pay off their debts faster. Learn more about debt consolidation in Niagara Falls here.
Home equity loans. These are any loans that use home equity as collateral. Since the loan is backed by property, home equity loans have some of the lowest interest rates on the market. Borrowers can use funds from a home equity loan for anything they desire, from funding renovations or buying a second home, to paying off debts or making investments.
Home equity line of credit (HELOC). This lending option provides unique flexibility. Borrowers are not given a lump sum of cash, instead, they can withdraw funds from their line of credit on an as-needed basis. They can withdraw cash as many times and as much as they want as long as the total doesn’t exceed the credit limit. Only interest payments need to be made each month until the line of credit’s term is over.
Bad credit mortgages. These are mortgages catered to borrowers with low credit scores. This ensures that if major lending institutions deny someone a mortgage based on credit, that individual can still get the home they want in Niagara Falls. Bad credit mortgages will have higher interest rates and fees, and they will often be for a much shorter period of time than ordinary mortgages. Private lenders are the most common bad credit mortgage providers in Niagara Falls and throughout Ontario.
Rapid Financing from Private Lenders
Banks in Niagara Falls have to follow a rigorous time-consuming mortgage approval process. There is no way to speed up this approval process, which can be problematic for property sales that need to be processed quickly. Private lenders can provide loans much faster than traditional lending institutions, even as fast as one week.
How to Find Professional Private Lenders in the Niagara Falls Real Estate Market
Mortgage Broker Store has been active in the Niagara Falls’s real estate market for decades and they have developed a vast network of private lenders across Ontario from Windsor and Niagara to Thunder Bay and back. They can tap into their connections to identify private lenders in Niagara that can work with you, and even negotiate with them to get a more advantageous deal.
If you want to get a mortgage to purchase a home in Niagara Falls, or simply want to explore your financing options, you do not need to solely rely on banks to make it happen, you can work with private lenders in Niagara Falls. To learn more about private lending and real estate financing in Niagara Falls, call (416) 499-2122 or fill out a form on this website to get started. Here you can get a free private mortgage consultation with a professional mortgage broker.
Once they understand your current situation and goals, they can access their network of private lenders in Niagara Falls to help you get your mortgage approved.