A Flexible Alternative To Traditional Lenders
A private mortgage is an alternative loan source for when the bank says no. If you are unable to qualify for a mortgage, or need access to your money sooner than the traditional wait period of two or three weeks, instead of going to the banks you can go to a private lender called a “mortgage investment corporation” (MIC).
The main different between a traditional mortgage and a private mortgage is the length of the loan. Private lenders specialize in short term loans (less than a year), where as a traditional loan from a bank is likely to be longer term (more than 3 years).
Private Mortgage Case Study:
A client of ours had been approved for a mortgage with the bank, but unfortunately from the time he was approved until the closing of the property he lost his job due to an injury and did not qualify for the bank mortgage anymore. Avantus stepped in and secured a private mortgage for the client, and after he recovered from his injury he went back to work. 3 months after he started his new job, he was approved by the bank again and used the loan to pay out his private mortgage.
The Private Mortgage Process
1. Consultation
During the initial consultation, the borrower discusses their needs and intentions with the mortgage broker. This is the step where both sides try to determine whether the other party is a good fit to do business with.
2. Substantiating borrower’s strength
If both parties decide to move forward, the broker will collect the necessary documents from the borrower to substantiate the borrower’s strength, and prepare a proposal to present to any potential lenders.
3. Negotiating with the lender
The broker then sends out the proposal to potential lenders and goes over the details of the deal, acting as the mediator if the loan amount or fee needs to be renegotiated. The broker’s main role is to protect the interests of both the lender and the borrower.
4. Ordering an appraisal
Once the details of the proposal are negotiated, an appraisal is ordered from a third party to determine the value of the property, and whether there are any environmental concerns. This can take anywhere between a few days to a couple of weeks.
5. Commitment Letter
Details of the appraisal are sent to the lender who then approves and issues a commitment letter, outlining all the details of the loan such as the security, loan amount, and rates. The lender and broker confirm the details and send over all necessary documents to a lawyer.
6. Lawyer Instructing and Completion
The lawyers do their due diligence in a process called “instructing” and then send documents to the clients to sign. Afterwards they request the funds from the lender, who will transfer the loan to the lawyer’s trust account, completing the private mortgage process.
Frequently Asked Questions
What is the maximum loan amount I can obtain?
The maximum loan amount you can get is about 75% of the value of your home. For example, if your home is worth $1,000,000 the maximum loan amount will be $750,000.
How do you determine the value of the property?
We bring in an appraisal company to determine the value of the property and send us a comprehensive report.
What is the interest rate?
The interest rate will be different for every mortgage and depends on variables such as the location of the property, type of property, and loan to value ratio, etc. It is usually around the prime rate + 5%.
The rates on first mortgages can start as low as 5.99% and go as high as 12% depending on the risk involved including your personal credit history. Second mortgages are considered higher risk and therefore will normally start at 7.99% interest, going as high as 15% (depending again on risk).
Unlike the banks, your private lender will charge a fee which, along with broker commissions, will be deducted from your loan.To find out more about rates, contact us for a free quote.
What documents would you need from me?
We will need your mortgage application, government-issued ID, purchase of sale agreement, current mortgage statement. Depending on your type of employment, we will also need the following:
Hourly employees
Pay Stubs - showing year-to-date income verification.
T4's and/or Personal Tax Returns (T1 Generals)- 3 years to take an average.
Notice of Assessment - (NOA) - most recent to confirm no taxes owed.
Commission Income
T4's and/or Personal Tax Returns - 3 years to take an average.
Job Letter - confirming position.
Notice of Assessment (NOA) - most recent to confirm no taxes owed.
Self-Employed
Financial Statements of Company
Confirmation that no Payroll remittance or GST are owing
NOA's (Personal Notice of Assessments).
Personal Tax Returns ( T1 Generals showing personal net income).
How long does it take to approve my loan?
Once you have submitted all necessary documents, we can usually come back to you with an answer within 2 business days.
Got more questions?
If we haven’t been able to answer your questions on this page feel free to reach out to us, we’d be more than happy to help.