A question I often am asked, as a Grimsby mortgage broker is whether it pays to have a private mortgage or not. There are some instances where it can be beneficial to a home buyer, especially if they are having a hard time qualifying for a traditional mortgage.
What is a Private Mortgage?
This is a mortgage that has been financed through a private individual rather than a lending institution. This can be arranged with one of our certified private lenders, or even with your own friends or family instead of having to go through a lender. They are typically interest only mortgages that don’t require you to pay down your principal, allowing for lower monthly payments. However, they aren’t meant to be used as a long term solution. They are meant to be used over a 1 to 3-year period to help a borrower to get to a point where we can qualify for a conventional mortgage with an institutional lender. These scenarios include requiring funds prior to the maturity of your first mortgage. In this case, we would match the maturity date of the private to coincide with the maturity date of the first mortgage, at maturity we would combine the two at a preferential rate. Other than emergency lending scenario for fast access to funds, or while they are improving their credit.
Some of the situations a borrower would opt for a private mortgage are:
- Income tax arrears
- Inability to prove sufficient income
- Not having good enough credit to be qualified for a traditional mortgage from a bank.
- Being self-employed with an unsteady or unverifiable income.
- Being a non-resident.
- As a source of emergency funding when property taxes are in arrears.
- When financing non-conventional properties either small, rural, etc.
- Rent to own final purchase financing
The Benefits of a Private Mortgage
With a private lender/mortgage, less paperwork is needed for the approval process, which helps home buyers/owners who can’t easily prove their income, such as with self-employment. You can have a highly profitable business, but if you don’t have the paperwork to prove it, you’ll find it harder to get a traditional loan.
With a private mortgage lender, you are dealing directly with the person who will finance your loan. They will base their decision on your needs and situation.
There is also a lot more flexibility where your credit history is concerned. If you have a down payment that is sufficient or enough home equity, getting a private mortgage is much easier. They are also more flexible with lending rules, unlike your traditional lenders, and can adjust your mortgage package to suit your needs.
In situations where you need a mortgage quickly, such as coming across a great buying opportunity, or for refinancing, going with a private mortgage takes much less time. Because there is less red tape with private lenders, they can access funds quicker than traditional lenders, making the loan process speedier.
Something else you get when going with a private mortgage is a more one-on-one approach to lending. The mortgage is being tailored to your specific situation and needs on a more personal basis. It gives you more options than the more rigid traditional mortgage process. A private mortgage can be the right solution in the right circumstances.
If you are thinking about applying for a private mortgage, give one of our Grimsby mortgage broker team a call today!