The major Canadian banks have set very high criteria for people who are applying for a loan. This ensures that the banks reduce their exposure to any bad debt losses. Unfortunately, this means that many people in Quebec who can easily afford a mortgage are turned down. A borrower can get turned down if their credit rating is not very good or if the loan to value of their property is too high and they can be turned down for a host of other reasons. Private lenders in Quebec are much more flexible and will consider each loan application based it its merits.
Self employed income has always raised red flags with many traditional Canadian lenders such as the major banks. The primary reason for this is that self employment income can be overstated. People can simply say that they made more money and pay the additional taxes tax on the factious income. This may sound strange to pay more taxes, but it may help you get a mortgage at a much lower rate of interest. This can lower your overall monthly costs even with the additional taxes factored into to cost. Quebec private lenders look at self employed income as one component of the overall financial picture. As long as there is enough equity in your property a private lender will be interested in providing you with the mortgage you need.
Most private lenders in Quebec use the loan to value (LTV) ratio as the primary indicator of funding a mortgage deal. A LTV over 85% means that your chances of getting funding are low while a LTV below 75% means that your chances of getting funding are very good. The tricky area is when your LTV falls between 75% and 85% LTV. Quebec lenders will look at each individual situation to decide on whether to provide funding for a mortgage. For a very high LTV ratio, a key factor may be how long it takes to sell a house. To find out your LTV ratio simply divide the existing mortgage by the value of the property, for example, a $100,000.00 first mortgage divided by the $300,000.00 value of the property results in a 33% LTV ratio.
A Loan-to-Value ratio for a property is equal to all mortgages on a property divided by the appraisal value of the property. If you own a home worth $1,000,000 and get a new first mortgage for $750,000 then your LTV ratio is 75% (i.e., 750,000/1,000,000)
Most banks and other A-Tier Lenders can loan up to 95% LTV provided that the borrower has a good income and credit score. Most non-bank lenders can lend up to 75% LTV but can overlook income and credit issues.
For most mortgage transactions a private lender will require an appraisal of the property. Appraisers provide an independent unbiased estimate of the present market value of a property. An appraiser will compare your house to three other similar houses that have recently sold in your area. Adjustments will be made for factors such as different house sizes or the number of bedrooms in the home. The appraised value will be the amount that the mortgage loan will be based upon, so as the property owner you should make sure the house is clean and tidy before the appraisal is done.
Of all the different types of lenders, private mortgage lenders have the most lenient approval criteria. Private lenders will generally provide mortgages up to 75% of the value of the property. Most private lenders can only offer mortgages on typical residential homes worth at least $100,000. The ratio between the value of the requested mortgage and the value of the property is called a “Loan-to-Value” (LTV) ratio and is the main factor when it comes to approval on a private mortgage. These criteria are different from those of Banks, Trust Companies, and Credit Unions, which will also consider a borrower’s income ratios, employment, and credit score in addition to their LTV ratio. Private lenders are usually not concerned with the creditworthiness of the borrower.
Since private mortgages are considered to be a high-risk investment, these lenders demand higher rates and fees. A borrower can expect to pay rates between 7% to 12% and fees equal to 4% to 6% of the mortgage amount. The rates are dependent on the LTV ratio, while the fees are dependent on the complexity of the mortgage, which includes the cost of dealing with any legal issues. Approval can also depend on the location of the property, and in general, larger cities will have higher maximum LTV ratios. This rate estimation tool will take into account all of these factors and estimate what interest rate you can expect to pay for a mortgage.
Our brokers strive to provide you with the best service and advice possible. We will be totally honest with you and tell you the pros and cons of all the mortgage options that are available to you. Our lenders are an excellent source of funding when other financial institutions have turned you down. Call our Quebec brokers for more information on lenders.
Follow this link for the Province of Quebec.