If you have bad credit, unverifiable income or need cash quickly to purchase a property, a prime lender, such as a bank, may reject your mortgage application. Sometimes, even ‘B lenders’ will say “no.” In these cases, private mortgages in Vancouver may be your best option.
Private mortgages are considered a form of “alternative lending” in the mortgage world. They offer large, short-term loans from individuals or a collective group. When they are from a collective group, they are called “mortgage investment corporations” (MICs) or “syndicates.” The groups are composed of individuals who pool their money to provide private loans to those seeking a mortgage.
There are multiple pros and cons to seeking a private mortgage – whether from an individual or a group. It’s always best to speak with a licensed, Vancouver mortgage broker before embarking on the path of home ownership. Whatever your financial scenario, getting smart, sound advice can help you get the best deal you can qualify for.
Contact us today, and we’ll search the market for a solution that fits your unique case.
Want to learn more before getting in touch? Below, we’ll answer some common FAQs about private mortgages in Vancouver.
What are the best deals I can get with a private mortgage in Vancouver?
Private mortgages with alternate lenders are not going to offer rates that a bank or credit union would offer. Put bluntly: they are very expensive loans. They can charge up to 5.95% to 6.95% for first mortgages and 7.95% to 10.95% for second mortgages depending on the loan to value (LTV), type of property, and current market rates.Read more
Plus, private loans come with additional lender fees you’ll need to pay upfront (totalling about 2% to 4% of the loan amount). A prime, ‘A lender’ would typically charge mortgage rates under 3% (depending on current market rates) and don’t charge lender fees.
Private loans come with a minimum 75% to 80% loan-to-value (LTV) ratio. That means you’ll need a down payment of 20% to 25% to purchase a property with a private lender. Mortgages with financial institutions (i.e. banks) require as little as 5% down.
Private lender terms last for 1-3 years and have no amortization period since the monthly payments are towards interest only. By comparison, traditional mortgages come with up to 35-year amortization periods. Their monthly payments use what are called “blended payments,” since they go towards both the interest and principal on the loan.
In general, alternative lenders are in the business of turning high yields quickly. They want to make a profit on their loan, and then pass you to a bank as soon as possible.
When you take out a private mortgage in Vancouver, your monthly payments go towards interest alone; you won’t be paying down the balance on your home’s worth. With a traditional mortgage, monthly payments go to both the interest and “principal” payments (i.e. the value of the home).
How do I calculate the fees on a private mortgage?
For example, let’s assume you want to buy a condo for $600,000 in Vancouver, using a private lender.
You’ll need to come up with $150,000 as your 25% down payment. That leaves you with a $450,000 loan to apply for.
Your mortgage broker helps you apply, and a private lender offers you 6.95% interest on a first mortgage of $450,000, for a 1 year term.
You can do the math on your private mortgage like so:
$450,000 x 6.95% = $31,275 (1 year of interest).
$31,275 / 12 months = $2,606.25
$2,606.25 becomes your monthly interest payment.
That means you’ll pay $31,275 in interest for 1 year, before paying back the principal on the loan itself (i.e. before paying back the $450,000).
In addition, the private lender will charge a 2% lender fee which is a one-time cost (i.e. no added fees if you renew for another term).
In our example above, the lender fee will be $9,000 (paid on closing).
If the above seems like a glim scenario, and you’re wondering why anyone would want a private lender mortgage, we’ll explain more on that below!
Or, if you’re ready to move ahead, contact us, and we’ll move you on to the next step!
What are the benefits of taking out a private lender mortgage?
Private mortgage loans have the disadvantage of being expensive. However, they provide the advantage of letting a property buyer maneuver in other ways. Depending on your situation, you may need an alternate lender for any of the following reasons:Read more
- Your credit rating is poor (likely below 600), and you’ve been rejected by the banks and credit unions.
- You have unverifiable income, and can’t use a Notice of Assessment (NOA) to qualify for a traditional mortgage. See our page on self-employed mortgage options for more on this.
- You want to buy a unique property that traditional mortgage lenders won’t loan against (e.g. you want to buy a log cabin in a remote location).
- You need cash quickly to obtain the investment property you want (e.g. when buying mixed-use properties, time will be of the essence). Private lenders are more agile, and can get you funds within a few days, if necessary.
- You no longer qualify for a traditional mortgage on your pre-sale property that you purchased 2-3 years ago. Instead of losing your 15% to 20% deposit to the developer, you can fund the presale property with a private lender and sell the property immediately upon completion.
If any of the above sound like your case, we encourage you to get in touch. We can help you determine if you need a private loan or not:
Now, all of the above reasons to get a private mortgage still assume you’re ‘good for the money’ in other ways. This brings us to our next point…
What are the approval requirements of a private mortgage loan?
Private lenders don’t have as many ‘hoops to jump through’ as the banks, credit unions and trusts. They are not bound by as much legislation. So, the rules to qualify for a loan are much simpler. Not to mention, they are quicker.
Private mortgage lenders usually base their “yes” on the following criteria:Read more
Click on a title to expand its details below.
You have your down payment ready-to-go
As noted above, you’ll need to put down at least 20% to 25% of the purchase price of the property to get a private loan. You’ll need to show you have these funds when submitting your application.
Your property is easy to resell
Remember, these are fast, but high-risk loans for the lender. If you can’t make your monthly payments, that will tie up their funds, which could otherwise be turning a profit elsewhere. They want to know they can recoup their losses by taking possession of your home and selling it, if need be.
High-density, urban areas where real estate sells quickly are usually a safe bet.
But, what if you did want that log cabin in a remote location? You may still get it, if it’s a popular vacation property, for instance. A mortgage broker can help you find a lender for something like this.
You have reasonable income to pay the monthly interest payments
Your income may not be provable, which is one of the reasons you may need a private lender in the first place. However, you’ll still need to show the lender you can pay your monthly payments somehow. You may need to provide other proof that you earn what you say you earn.
We recommend speaking to a mortgage broker to help you prepare all of the above. They can ‘package’ your application in a way that can increase your chances of being approved.
Contact us for help!
Don’t pick a private mortgage until you speak with a Vancouver mortgage broker!
While the above may seem simple enough, you should still speak with a Vancouver mortgage broker before going straight to a private lender.
Private loans are not always necessary. Independent, B.C. Independent mortgage brokers might be able to come up with creative solutions to help you get the cash you need to purchase or refinance a property.
More importantly, they are aware of the industry. They can shop around to get you the best rates on a private mortgage, if you do need one.
Get in touch with us today, and we’ll take a closer look at your case.