PRIVATE LENDING
No income, no problem. Access your home equity at anytime.
Private lending can be the best tool.
Private mortgage financing diverges from traditional lending, offering tailored solutions for individuals with unique financial profiles or unconventional property needs. The key advantage lies in its flexibility, allowing for swift approvals and personalized terms.
Table of Contents:
What is Private Lending
Private lending encompasses mortgages extended by individuals or Mortgage Investment Corporations (MICs). Individuals typically offer greater flexibility but at a higher interest rate. Mortgage Investment Corporations are operational entities expertly managing mortgage-related assets. While MICs employ slightly stricter lending guidelines to reduce risks for shareholders, they generally provide more competitive interest rates.
To minimize risk, private lenders primarily rely on a home's loan-to-value ratio for approval, where lower percentages indicate lower risk. Additionally, private lenders may consider factors such as credit history, payment affordability (evaluated through assets, income, and liabilities), and the borrower's exit strategy, although these are not as pivotal as the loan-to-value ratio. A lower level of risk corresponds to a more favorable interest rate!
Who Can Benefit
Private financing isn't tailored for the typical couple earning $150,000/year purchasing their first $500k apartment. It is specifically designed for individuals with distinct goals, those who may not wish to pursue conventional financing. The substantial demand for private financing arises from its unparalleled flexibility, particularly in dynamic and competitive markets like Vancouver. Clients often turn to private financing for diverse reasons, a few of which are underscored below.
Property Investor
Construction/
Renovation
Debt
Consolidation
Self-Employed
Short Term Loan
Bruised
Credit
Calculating Your Loan-To-Value
As previously discussed, private lenders heavily consider a low loan-to-value ratio for approval to minimize risk. This ratio is calculated by comparing total debts to the home's value. Many lenders prefer a loan-to-value of 65% or lower, though some may extend loans up to 75% (Some may allow up to 80%, but policies can change depending on the market).
1. Get the market value for your home. Although BC Assessment may be very conservative, it's a great place to start if you're not familiar with the current real estate market and values.
2. Know your current debts on the home: Mortgage, home equity line of credit, etc.
3. Calculate your LTV: Total Debts / Market Value x 100 = Loan-to-Value
Example:
1. Property Value of $500,000
2. There is a mortgage of $200,000
3. $200,000 / $500,000 x 100 = 40% LTV
Questions & Answers
Q: Is private lending right for me?
Determining whether private financing is right for you depends on various factors, including your financial situation, needs, and preferences. Here are some considerations to help you decide: 1.Alternative Options: Explore alternative financing options, including traditional lenders, credit unions, or government-backed loan programs. Compare the terms and conditions to determine the most favorable option for your needs. Ask your broker if there is any alternative options before you resort to private lending 2.Speed of Approval: Private financing is known for its faster approval process compared to traditional lenders. If you need quick access to funds for a time-sensitive opportunity, private financing may be a viable option. 3.Financial Goals: Consider your financial goals and how private financing aligns with them. If you value flexibility in loan terms or have unique requirements that traditional lenders may not accommodate, private financing could be a suitable solution. 4.Risk Tolerance: Private financing often involves higher risk, given the potential for higher interest rates and fees. Assess your risk tolerance and whether you are comfortable with the terms and conditions offered by private lenders. Are you able to afford the monthly payments? 5.Exit Strategy: Understand the exit strategy outlined by the private lender. If you have a clear plan for repaying the loan or anticipate changes in your financial situation that could impact repayment, it's important to communicate this with the lender.
Q: What are the rates and fees?
The rates and fees associated with private financing can vary widely depending on the lender, the borrower's risk profile, and the specific terms of the loan agreement. 1.Higher Interest Rate: Private financing often comes with higher interest rates compared to traditional lenders. The interest rate may be influenced by the chosen lender, loan to value ratio, borrower's credit history, financial stability, and the perceived risk associated with the loan. 2.Fees: Not all private lenders charge a fee, but a majority of lenders do charge a 1-2%. In the case of an equity take out, your fees can be subtracted from the funds (No fees upfront!) 3.Appraisal & Legal Fees: All lenders (Including big banks and credit unions) require appraisal fee, and every mortgage requires a solicitor to facilitate it.
Q: Consideration prior to private financing
1.How do you plan to support the monthly payments? (Ex: savings, side job, etc.) 2.What’s your exit strategy? (Ex: Selling the property? Expecting a new job in 6 months?) 3.How long of term do you need? (1-3 years?) 4.Do you need an open mortgage?