If you want to access your built-up home equity in Waterloo, you may need to work with a private mortgage lender to make it happen. The problem is that most banks don’t want to lend out funds to just anyone. Banks and other financial institutions like credit unions have strict rules and regulations that govern who they can work with, and as a result, they turn down most loans they receive.
In an already strict lending environment, inflation and high interest rates have made qualifying for a traditional mortgage from major financial institutions in Waterloo even harder. In these circumstances, borrowers have been turning to private lenders.
What Are Private Lenders?
Private lenders are individual businesses or individuals who lend their funds to borrowers. In Waterloo, private lenders prefer to lend their money in the form of registered mortgages secured by a property, usually a home. However, it can also be a vehicle or an unused plot of land.
Just like banks, private lenders charge interest on the mortgage loans they provide. Private lenders do not adhere to the same rules as banks, allowing them to service hard-to-place loans most financial institutions reject. Borrowers who fail to get loans from banks will often turn to private lenders as an alternative funding source.
If you own a home in Waterloo or want to become a homeowner in the region, you can work with a private mortgage lender to access the funding you need. While private lenders specialize in working with individuals who can’t or cannot work with banks, they also have their criteria for approving mortgage applications.
Common Reasons Why People Need Private Mortgages in Waterloo
There are countless possible uses for a private mortgage, but some of the most common include:
- For living expenses after being laid off from work
- To stop a power of sale or foreclosure
- To buy or mortgage an undeveloped plot of land
- For home improvement or repairs
- To pay college or university fees
- To pay off high interest credit card loans
- Rejected by the bank
- To buy a vehicle
Benefits of Working with Private Lenders
Reasons for Financing
When applying for a mortgage, you must state why you need the money. Banks often reject loan applications that are not for buying a home, compared to private lenders who are very lenient and will approve loans for various reasons, from tuition and living expenses to weddings and home purchases.
Poor Credit Score
Credit scores are a 300 to 900 point rating system that evaluates borrowers’ creditworthiness based on a wide range of factors, including their credit history and income. A ‘poor’ credit score is one below 600. Banks in Waterloo will not lend to borrowers with credit scores below 650 under any circumstances.
Private mortgage lenders use a borrower’s credit score to determine the interest rate; higher scores result in lower interest rates charged. Most private lenders will offer a rate between 8% to 12%.
Small and Short-Term Loans
With a private mortgage, borrowers can get mortgage loans as small as $30,000 and/or terms as short as one year.
Quick Financing
Bank loans can take a long time to process, sometimes up to a month or more. This can be a big hassle when funds are urgently needed to facilitate a home sale. If you can’t get the money you need in time, you may be unable to purchase the home.
Private lenders can process mortgage applications much faster. If the situation requires it, you can obtain the necessary funds within the week. Private lenders do not need to follow the same rules as the banks and can even tailor mortgage solutions to customers’ needs.
How to Get Private Mortgage Approval in Waterloo
Banks prioritize credit scores when deciding on loan applications, but private lenders do not. When you apply for a private mortgage, the private lender will primarily focus on the value of your home compared to any debts attached to the property (otherwise known as ‘liens’).
Private lenders will use the Loan-to-Value ratio (LTV) to determine loan approval.
The LTV ratio compares the property’s value with that of the loan. Calculate LTV by dividing the total debt on the property by its appraised market value.
In Waterloo, private mortgage lenders will approve mortgage loans worth up to 75% of the property’s market value. To secure a private mortgage in Waterloo, you need a down payment of at least 25%.
If you already own a home. You must ensure all total debt does not exceed 75% of the property’s value. With $900,000 debt on a $1,000,000 home (90% LTV), you won’t get approved for a private mortgage in Waterloo.
In February 2023, FSRA polled homeowners across Ontario on private mortgages. When asked about reasons for working with a private lender, 26% cited more flexible terms, 13% mentioned an easier application process, and 12% believed private lenders were better for self-employed or those with unstable income.
Why Private Lenders Have an Eye on the Waterloo Real Estate Market
Private lenders target highly valuable real estate, making Waterloo a desirable market.
In 2010, the average home in Waterloo spent 70 days on the market before selling for an average price of $329,797. In July 2024, the amount of days the average home spends on the market before being sold has been cut to 22 days and the average selling price has more than doubled to $782,716.
More private lenders in Waterloo seek to earn a living from the promising Ontario real estate. Ontario’s real estate market has seen skyrocketing prices over the past few years, drawing significant attention. Waterloo real estate is in demand for those seeking Toronto’s economic opportunities while enjoying Waterloo’s space and affordability.