Private Mortgages
Find alternative loan options that work for you
A private mortgage is a short-term, interest-only loan to buy property. Private mortgages are offered by independent individuals or institutions, so it may be easier to qualify for one. Most Canadians require a mortgage to buy a home. But the process of getting approved for a mortgage isn’t easy. You need to be in good financial health and meet requirements for income, debt, and credit score. So, what happens if you aren’t? In some cases, a private mortgage could be an alternative that will help you achieve your home ownership goals.
Important considerations
Your timeline
Going through a private lender will speed up the process compared to a traditional mortgage.
Length of ownership
Private mortgages are best for short-term scenarios.
Higher interest rates
You will likely need to pay higher interest rates on private mortgages.
Ability to make payments
There are harsh implications if you get behind on payments. Private mortgage lenders will foreclose on a home more quickly than a bank.
Frequently Asked Questions
How do I find private lenders?
Private mortgages are offered by individuals, syndicates, and mortgage investment corporations. An experienced mortgage broker may be able to put you in touch with a reputable private lender, or you can search for one yourself.
Are there alternatives to private mortgages?
If you don’t qualify for a traditional mortgage, and you can’t get or don’t want a private mortgage, consider these alternatives.
- Get a co-signer. Friends or family members who co-sign a mortgage add the strength of their financial profile while also assuming responsibility for payments if you fall behind.
- Rent-to-own. These types of programs are structured as a long lease with an option to buy the property at the end of a specified term.
- Multiple collateral mortgages. These require a second property to secure the mortgage, typically the home of a friend or family member. Having the extra collateral will make it easier for you to qualify for a loan, but both parties are now responsible for it.
- Seller financing. This option isn’t common, but you may be able to negotiate flexible terms with the seller. The most popular example of seller financing is a Vendor Take Back (VTB) mortgage, in which they hold a loan for part of the sale price.
- Wait until you can qualify. Sometimes the best thing to do is pause your house hunt. Take the time to get your financial health in order, pay off more of your debt, build a better credit score, and save up a larger down payment.
How do I get a private mortgage?
While getting a private mortgage is generally faster and easier than qualifying for a mortgage with a bank, you’ll still have to meet some eligibility requirements. To qualify for a private mortgage, you need to have:
- Proof of income: You’ll need to demonstrate that you have the income necessary to make mortgage payments. This can be tricky if you’re self-employed, and you may be required to provide extra documents.
- Down payment: Usually you’ll need a minimum down payment of 15% of the purchase price to get a private mortgage.
- A sellable property: If the borrower defaults on payments, the lender will want to be able to take possession of and even sell the property to recoup their investment.
Why go private?
Working with a private lender is a good idea if:
You have poor credit history
You don’t have time to go through the traditional process
You are purchasing an unconventional property
You’re a newcomer to Canada and cannot meet standards of other lenders
When should I get a private mortgage?
Private mortgages are not always ideal and require careful consideration.
Pros of private mortgages:
Faster approval process
Suitable for people with poor or little credit history
Open to people who don’t have traditional sources of income
Cons of private mortgages:
Higher interest rates
Additional fees for setup and commissions
Interest-only payments don’t help you pay down your mortgage
Private lenders are not licensed, so you can’t be sure if they have the same education, experience and suitability requirements as licensed mortgage professionals
Harsh implications for not making payments
Why work with a mortgage broker to get a private mortgage?
Knowledge of lenders
A mortgage broker can help you find reputable lenders who are likely to work with you.
Peace of mind
Seeking a private mortgage can be stressful. Working with someone you can trust to help you navigate the process lets you rest assured you are making the best possible decision for the short- and long-term.
Understand all your options
A mortgage broker can listen to your needs and help you properly assess all available options to achieve your homeownership goals.
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