There are times in life when money may be tight. There are also times when homeowners may suffer from poor credit. Any host of reasons can lead to a lowered credit score. A job loss, reduced income, sudden and unexpected expenses that may be hard to cover, or an expensive divorce can all lead to a dip in credit score.
Regardless of the reason that leads to poor credit, Ontario homeowners still have choices. Ontario homeowners can also turn to lenders who may be able to negotiate secured mortgage loans to help ease short-term financial difficulties.
It is not an exaggeration that we have all suffered to some degree or another under a prolonged pandemic. Covid-19 has forced many of us to make changes to our job structures while still trying to keep paying for all housing costs which includes monthly first mortgage payments.
Ironically, despite lowered household income for many during the pandemic, the Ontario housing sector has experienced unprecedented growth. With significant year-over-year property appreciation in all areas of the Province increasing into double-digit territory, real estate has benefited from the economic spinoffs of the Covid-19 pandemic.
According to the Toronto July Housing Report, the average price of a single, detached home has jumped to 1.1 million. With limited inventory on the market, The Ontario Real Estate Association (OREA) reports that July housing inventory is moving very quickly with an average of just 13 days from listing to selling.
Coupled with these encouraging numbers, The Bank of Canada announced recently that the Overnight rate will be staying at the historically low level of 0.25% until early into 2022. This will allow for some lenders to continue to offer discounts to mortgage rates through the next 6 months at least.
How Hard Is It to Get a Loan from a Private Lender?
Just how can Ontario homeowners take advantage of newly acquired housing appreciation when damaged credit is a stumbling block to bank mortgage financing?
The answer lies in the number of well-established and experienced private lenders operating throughout the Province.
Private lenders will not be able to offer the competitive mortgage rates offered currently by the banks, however, a private lender will be able to overlook credit issues as well as reductions in income and still offer private secured mortgage financing. For those Ontario homeowners struggling with damaged credit, the good news is that it is not difficult to obtain private mortgage financing.
Ontario-based private lenders will be able to offer secured private mortgage loans:
- Quickly and the process is straightforward- While the banks tend to take up to a number of weeks to process mortgage loan applications, private mortgage finance is a straightforward process and can be negotiated in a matter of days. Most second mortgage loans are approved within 1 to 4 days. This is very appealing for those that require immediate refinancing.
- Much needed mortgage financing on a short-term basis- This is very appealing for those that require to refinance and take out a second mortgage loan option for a shorter time period providing both immediate financing and a long enough to help to restore credit if the loan is paid on-time and in-full for the course of the loan term. Most Private mortgage loans terms are between 6 months to 3 years.
- By overlooking income and poor credit and instead basing financing on the appraised value of your property and degree of existing equity- Your home is what private lenders will be leveraging the mortgage financing against. Income level and creditworthiness will not prevent obtaining a private mortgage loan.
Types of Private Mortgage Loans
- Home Equity Loan- A home equity loan is a second mortgage that is calculated utilizing the equity in your home. It can be used for any number of purposes including paying off liabilities, using the funds for immediate financial needs such as home fix-ups.
- Home Renovation Loans- A home renovation loan is a type of second mortgage leveraged against your property. This type of mortgage loan is used to pay for any home renovation costs and home repairs.
- Bridge Financing- Bridge financing provides a bridge between selling your home and closing on a new tapping into existing equity. Bridge financing can provide immediate and short-term financing. The term length of a bridge loan is between 1 to 6 months depending on a homeowner’s unique financial picture.
- Debt Consolidation Loans- Debt consolidation loans can provide much-needed additional mortgage financing to merge all monthly debt payments into one debt payment. This private mortgage loan option will help a homeowner reliably cover housing costs while covering debt payments.
What Criteria are used to Approve a Private Mortgage Loan?
All private lenders are basing the mortgage calculations by assessing a homeowner’s property which is used to leverage the private mortgage loan. Private lenders will calculate:
- The Loan-to-Value (LTV) by assessing a current appraisal of your property. Generally, as private secondary mortgage finance is considered to be higher-risk, a private lender will not lend beyond a 75% LTV which represents up to 75% of the appraised value of your property.
- The degree of equity that a homeowner has in their home. The overall percentage of equity compared to what is still owing on your first mortgage will largely help to determine the final mortgage loan amount. Private lenders will need a minimum of $70,000 in equity after the new mortgage is registered in order to approve a homeowner’s mortgage request.
- Any additional financial assets (if applicable)
- Take into consideration the location of the property- As in all things pertaining to real estate, location is paramount when negotiating terms on a private mortgage. There is considered less risky for a private lender to lend out mortgage financing for a property in a desirable neighborhood.
- Overall condition of the property- Private lenders will be assessing the general condition of your property. Is there water damage or mold or foundation issues? Conversely, any updates and renovations will increase the desirability of your property and help to secure private mortgage financing.
What Rates and Fees Do Private Lenders Charge?
Many homeowners are concerned about the fees and mortgage rates that they will have to face when contemplating second mortgage options. For most private lenders it is standard to charge between 7% and 12% depending on the financial circumstances of a particular homeowner.
Fees attached to most private mortgage loans tend to fall between 3% and 6% of the total cost of the loan. A private lender will be determining the associated risks involved in lending out mortgage financing and this will affect both the overall finalized mortgage rates and fees involved.
When arranging a private mortgage loan, it is important to bring with you all the necessary documentation including a recent home appraisal, proof of all sources of income, a list of any financial assets as well as the last two years’ NOA’s. It will help to also be clear in terms of which second mortgage loan would best suit your short-term financial goals.
Mortgage Broker Store Will Help Direct You Towards Private Mortgage Options
If you are an Ontario homeowner or a borrower that would like to obtain mortgage financing, don’t let credit issues stand in your way of purchasing a home or taking out hard-earned equity from your property to pay for needed expenses.
Mortgage Broker Store has access to a broad network of private lenders across the Province. A private lender will be able to sit down with you and discuss your options directly which will help you achieve your mortgage goals.