If you want to own a home in Waterloo or access your built-up home equity, you may need to work with a private mortgage lender to make it happen. Owning a home is a life-defining transaction, one that requires financial assistance from lenders like banks for most Ontarians. 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 mortgage applications 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. The Financial Services Regulatory Authority of Ontario (FSRA) has reported that the value of private mortgages across Ontario increased by over 70% from 2019 to 2021, and this trend is expected to continue throughout the early 2020s.
What Are Private Lenders?
Private lenders are individual businesses or persons that lend their own funds to borrowers. Private lenders in Waterloo prefer to loan out their money in the form of registered mortgages secured by a property, usually a home but it can also be a vehicle or an unused plot of land.
Just like banks, private lenders charge interest on the loans they provide. Private lenders do not adhere to the same rules as banks, allowing them to service hard-to-place loans rejected by most financial institutions. Borrowers who fail to get loans from banks will often turn to private lenders as an alternative source of funding.
If you own a home in Waterloo or are looking 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 are unable to work with banks, they also have their own 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 a variety of reasons, from tuition and living expenses to weddings and home purchases.
Poor Credit Score
Credit scores are a 300-900 rating system that scores borrowers’ creditworthiness based on a wide range of factors including their credit history and income. A ‘poor’ credit score is seen as one below 600. Banks in Waterloo will not lend to borrowers will a credit score 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 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, in some cases 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 not be able to purchase the home.
Private lenders can process mortgage applications much faster. You can obtain the necessary funds within the week if the situation requires it. Private lenders do not need to follow the same rules as the banks and can even tailor mortgage solutions to the 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 value of the property 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 loans worth up to 75% of the market value of the property. To secure a private mortgage in Waterloo, you need a down payment of at least 25%.
If you already own a home. You need to make sure 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 for them.
In 2010, the average home in Waterloo spent 70 days on the market before being sold 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.
There are more private lenders in Waterloo seeking 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.