When there is a will there is almost always a way. This expression stands true for most things in life. It aptly applies to those who aspire to obtain a mortgage but may have experienced difficulty being approved by traditional banks based on increasingly stringent criteria.
Private Lending Options When the Banks May Turn you Away
Maybe your credit score has taken a hit and been negatively impacted. Perhaps you have lost a full-time position due to the pandemic. Maybe life factors like divorce and illness have affected your beacon score. You may also be looking for short term financing that can be processed quickly without going through the many hoops the banks have you jumping through.
Mortgage Broker Store is well aware of the difficulty facing lenders currently, on the road to mortgage loan acceptance. We are well established in Alberta and will be able to guide you in your loan search. There is a way forward with private lending options available to help bridge the lending gap left open by the banks with often hard to pass “ stress tests” when applying for a mortgage or other financing.
In Alberta There are Three Types of Lenders- What are They?
When contemplating approaching a lender for various types of financing, whether it be for a long or short-term basis, or for a mortgage and other financing need, an Alberta-based borrower will have a choice of three types or categories of lenders.
For the first two categories of lenders, the credit score will play a significant role in determining mortgage eligibility. A credit score can range from 300 (very poor credit rating) to 900 (considered exemplary). To be eligible for a mortgage loan, be it a first mortgage on a given property, second or even third mortgage most lenders will look to a credit score of 600 or above. Private lenders will be able to overlook credit issues and help borrowers obtain short term mortgage financing.
- A Lenders– Many borrowers are aware of only major banks as a lending source when contemplating applying for a mortgage. These big banks are considered to be A lenders. They will loan out mortgages to borrowers with exemplary credit and to usually long term salaried employees. The “stress test” that borrowers are subjected to is very stringent. loans are approved based on credit scores of 700 and over and sufficient proven yearly salary. A lenders will usually be able to charge 2% on loans with minimal fees
- B Lenders– These lenders represent Credit Unions and Trust Companies. Although borrowers will be assessed on similar criteria to the big banks, including base yearly salary and creditworthiness, these lenders will accept a lower overall credit ( beacon score) than their A lender counterparts. A Trust Company or Credit Union will accept a score of 600 if the salary is deemed sufficient. B lenders will usually charge between 4% and 6% on loans. Borrowers should expect to pay ½% in fees.
- C Lenders– These lenders represent private lenders. Private lenders can offer a mortgage personally, with other lenders as a syndicate, or via a pooled mortgage fund such as a Mortgage Investment Corporation (MIC). Private lenders will be able to look past credit obstacles and approve self-employed or contract employees. Fees will be higher, typically 3% to 6% of the overall loan, and will generally charge anywhere between 7% and 12% interest on these loans.
The Different Types of Loans Private Lenders can Offer
Applying for a mortgage may be the goal of some borrowers when approaching Alberta based private lenders. However, private lenders can also be a potentially attractive alternative for the borrower seeking short term financing for differing needs. Private lending will offer the borrower different financing options including:
- Consolidation loans-
- Home equity lines of credit (HELOCs)
- Reverse mortgages
- Home Improvement loans
- Bridge loans
- First mortgages
- Second mortgages
- Third mortgages
With each type of loan that a private lender can negotiate with a borrower, the advantages that private lenders can offer the borrower fall into several broad categories:
- Short term financing options
- Faster processing times
- Less reliance on credit scores and income
- Diversified loan options to offer the borrower
Approval Criteria for Alberta Private Lenders
Unlike A and B lenders, private lenders will base loans on criteria beyond an individual’s credit score. Criteria that will be assessed generally include:
- All sources of income- private lenders will look at all sources of income from a borrower including self-employed income, spousal and child support, investment income, and even child tax credit. Make sure to supply your Notice of Assessment (NOA) for the last three years as well as documentation proving other sources of income
- Assessing the Loan to Value (LTV) of your existing property– If you are applying for a second or even third mortgage on an existing property, a private lender will calculate the LTV to determine how much equity is built up on the property. Typically a private lender will loan up to 75% of the determined value of a property. If your property is 1 million, a private lender will lend up to 750,000 which represents 75% of the value of the property.
- Larger down payment- to compensate for less than desirable credit, a private lender will likely require a larger down payment if applying for a first mortgage for example.
- Appraisals on existing properties– when applying for financing, your home will be used as collateral on which to secure your loan. Private lenders will rely heavily on appraisals of your property to determine the market value of your home.
Specifics of the Alberta Real Estate Market Pertaining to Private Lending
Each Province has its own particular aspects that affect the lending guidelines of local private lenders. In the case of Alberta, there are a considerable number of rural properties that may not be as ideal to lend towards based on location. In general, to mitigate potential risk for the private lender, lending mortgages towards urban properties tend to be favored over rural properties.
Regardless of location, however, Alberta private lenders are always available to help fulfill other short term financing needs such as borrowing for home renovations or debt consolidation.
Let Mortgage Broker Store Help you Achieve Your Financing Goals – A List of Private Lenders in Your Area
Mortgage Broker Store understands the needs of the borrower and we are always striving towards finding the best match when looking at your particular mortgage and financing needs. We work with a network of private lenders across the country and are more than happy to guide you in important decisions that you will be making during the private lending process.