The bank has turned you down, but you’re ready to leave apartment life behind and become a homeowner. While traditional lenders won’t work with you right now, there is an alternative. You could seek a private mortgage that would allow you to buy a home now and pay off the debt using a series of installment payments. If this sounds like something you want to pursue, it pays to learn a few basics about private mortgages. The answers to these five questions will help you get started.
What Constitutes a Private Lender?
A private lender is a person or entity that is willing to provide the funding needed but is not a recognized bank or mortgage company. In many instances, the private lender is an individual who has money to invest in mortgage deals. That individual charges interest and other fees, making it possible to generate returns on every mortgage that’s approved.
There are also groups of investors who come together to provide this same arrangement. In this scenario, they share the returns generated by all fees and interest that the debtor pays over time.
How is a Private Mortgage Different From a Traditional Mortgage?
A private mortgage will differ from a traditional mortgage in several ways. The most obvious has to do with qualifying for financing. Private lenders tend to use broader criteria for extending mortgage loans. While your credit history, income, or some other factors may motivate banks to turn you away, a private lender might be willing to approve the mortgage application.
Private mortgages tend to run for shorter periods than traditional mortgages. That’s not necessarily a bad thing. It provides you with a few years to improve your credit rating and hopefully qualify for traditional financing later on.
It’s not unusual for private mortgage applications to be evaluated within a matter of days. By contrast, it could take weeks for a traditional lender to provide the applicant with a response.
What Kind of Interest Rate and Terms Come With Private Mortgages?
Private lenders have a great deal of discretion when it comes to defining the rates and terms that apply to a private mortgage. In general, expect an interest rate that’s above the current average. See this as a trade-off for the less stringent requirements you have to meet by going with the private lender.
The terms with a reputable private lender will be perfectly clear. There will be no doubt about any fees or charges that must be paid up front or during the life of the mortgage. The repayment schedule is outlined with no room left for doubt. There should also be contingencies defined that cover situations like the loss of your job, a medical emergency, and other issues that might interfere with the ability to make those payments.
Do Private Mortgage Lenders Report to the Credit Bureaus?
Not all private mortgage lenders will report the loan activity to any credit bureau. Others will report in the same manner that any bank or mortgage company would pass on information about the state of a mortgage. Before you agree to any financing, ask if the lender does report to one or more credit bureaus. That’s especially helpful if you hope to use the mortgage as a way to improve your current credit score.
Will Private Lenders Talk With Me if My Credit is Poor?
Private lenders often provide financing for people who are turned away elsewhere. If you have steady sources of monthly income over a certain amount, proof of identification, and a few other basics, there’s a good chance of being approved.
One way to find lenders who are willing to take a look at your application is to go through Clover Mortgage Brokers in Toronto and see what happens. Even if you’ve not had any success up to this point, there could be someone who is willing to provide the financing that you want.
Remember that there’s never been a time when the options for obtaining a mortgage were more varied. When the bank says no and the mortgage company isn’t returning your calls, consider seeking out a private mortgage lender. This time next month, you could be living in the home that you always wanted.
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.