Understanding When to Consider a Private Mortgage
Traditional mortgages aren’t the only solution for homeowners and buyers. Private mortgages offer alternative financing, opening doors when credit challenges, time constraints, unique properties, or unconventional income streams make securing a bank loan difficult. Let’s dive into the circumstances where a private lender could be the right choice for you.
Creditworthiness: Banks often place a heavy emphasis on your credit score. Private lenders, while still having standards, may consider the bigger picture. If your credit history has blemishes for reasons like past financial difficulties or a recent change in your income, don’t assume you’re automatically disqualified. Private lenders often look at factors such as your equity in a property or your overall asset base when making decisions.
Urgency: Private mortgages can be approved much faster than traditional loans. This can be a game-changer if you need funds quickly for a time-sensitive property purchase, pressing debt consolidation, or to seize an investment opportunity. It’s worth noting that even buyers with excellent credit sometimes opt for the speed of a private mortgage in a competitive real estate market, with the plan to refinance into a traditional mortgage later.
Property Type: Not all properties fit the mold that traditional lenders prefer. Maybe you’ve fallen in love with a rural property, a fixer-upper with amazing potential, or a multi-unit building ideal for short-term rentals. Private lenders are more adaptable in these situations, making decisions based on what the property could be, rather than just its current state.
Income Type: Freelancers, entrepreneurs, seasonal workers, and those with commission-based income often understand the frustration of not fitting the standard “salary” box. Private lenders may have more flexibility, looking at a wider range of financials like business assets, contracts, and investment income to get a true picture of your repayment ability.
Should I Avoid a Private Mortgage?
Private mortgages are a powerful tool, but like any financial product, they aren’t right for everyone. Due to the increased risk for the lender, they typically have higher interest rates and fees compared to traditional mortgages. This means you’ll likely pay more overall in the long run. They also tend to have shorter terms than typical 30-year mortgages, so they’re not always a good fit for long-term financing if you’re unlikely to refinance in a few years.
What to Expect
The process of obtaining a private mortgage does differ somewhat from a traditional bank loan. Appraisals are still required, and you can expect shorter repayment terms (often 1-3 years). The experience is generally more personalized, with communication styles tailored towards those comfortable with less conventional financial structures. A reputable private lender should guide you through the process, ensuring you clearly understand the terms and costs involved.
Private Mortgages Aren’t so Private
When traditional financing paths lead to dead ends, private mortgages can be the solution that unlocks your goals. Whether your credit history isn’t perfect, time is of the essence, your dream property is unconventional, or your income doesn’t fit the standard mold, exploring a private mortgage might be the key.
Considering a private mortgage in Ontario? Contact Lendwire to explore your options.
