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The Role Of Private Mortgage Lenders

Private mortgage lenders may have the financial solution you need if you’re looking for a mortgage but need an alternative to traditional financial institutions. No matter your reason for seeking other sources for a mortgage, private lenders play an important role in providing accessible mortgage solutions.

Who Is A Private Mortgage Lender?

Private mortgage lenders are businesses or individuals that provide private mortgage loans. They tend to have simpler eligibility criteria and faster application processes.  

Because of their independence, private mortgage lenders can provide funding without the standard requirements of high credit scores and steady income. Getting approved for a loan depends more on other requirements needed by the lender.

How Private Mortgages Work

Many private mortgage lenders are online, allowing you to easily apply for a loan from your home. Once you get approved, you’ll receive the money, which you can use to meet your financial needs and goals. These lenders often provide several kinds of mortgages, including first, second, third and fourth mortgages. 

According to your agreement with your lender, you’ll also start repaying the loan with interest until the loan term ends. Payments usually have a monthly frequency.  

Banks Vs Private Mortgage Lenders in Canada 

There are a few differences between private mortgage lenders and traditional lenders. Though they can help you achieve your financial goals, they each have unique offers to help you decide.  

Private mortgage lenders  Traditional banks  
  • More flexible approval criteria  
  • Potentially lower rates than unsecured loans 
  • Can be used to achieve multiple financial goals 
  • Faster processing & approval 
  • Strict eligibility criteria 
  • Higher rates for lower credit scores 
  • Long approval process 
  • Require low debt-to-income ratio 

Ways To Use A Private Mortgage Loan

Second mortgages can be incredibly valuable to homeowners as it comes with a relatively low interest rate. The loan is secured against some form of collateral, such as the borrower’s home, as such, lenders will be more inclined to offer lower and more competitive mortgage rates than other unsecured loan options.

Tips to remember when using a second mortgage to pay off debts  

Some of private mortgages’ best features are that they can be potentially high in value and have the flexibility to be used for different needs. Some of which are the following.  

Urgent expenses 

Because private mortgage lenders can process applications more quickly than traditional lenders, they are a good choice for when you need immediate funding. If you have sudden medical bills or a necessary repair in your home, you can tap into the equity in your home with private mortgages.  

Debt consolidation 

Leverage a private mortgage to repay those balances if you have multiple financial obligations, like several credit cards and loans. After you’ve repaid your other debts, you can focus on repaying the private mortgage.  

If you’re using the loan as a form of debt relief, private mortgage interest rates can be lower than those of credit cards. 

Unconventional property purchase 

Banks are more apprehensive about lending to those property types if you want to buy a piece of property like vacant land or rural spaces. If you have plans to purchase property or land that’s not residential or commercial, private lenders can provide a solution.  

Benefits of private mortgage loans 

Private mortgages can provide several different advantages in addition to the funding you can generally get from traditional banks.  

Low credit score requirement 

As mentioned previously, most private mortgage lenders base your approval on your property’s value. Some lenders may check your credit score and debt-to-income ratio, but it may not always influence the outcome of your approval.  

Flexible criteria 

If you don’t have a steady source of income or haven’t had the time to build a credit history, private mortgages are one option if you need a loan but can’t qualify with the bank. Private mortgage lenders understand that not everyone has the same financial background and are willing to accommodate.  

Quick approval process 

Determining the value of your property is a quicker process than a financial background check. Traditional lenders may take weeks or months to process the applications without indication that you might get approved. Private mortgage lenders may only take a few days to a couple of weeks.  

Reasons Why Canadians Choose Private Mortgage Lenders 

Mainly, homeowners in Canada choose a private mortgage because their financial situation might not meet the criteria that banks set. It could mean one or multiple of the following circumstances.  

You have non-traditional income 

Business owners and freelancers are examples of people with irregular incomes. Because their incomes potentially change every month, traditional lenders may see them as risky borrowers.  

Meanwhile, private mortgage lenders have their own set of criteria that is simpler to qualify for and may not be influenced by your employment status.  

You have less-than-ideal credit 

To get approved for a mortgage at a bank, you’ll need a credit score of at least 660. Even if you have the minimum credit score, approval isn’t guaranteed, and you may be offered unideal rates. Meanwhile, private mortgage lenders can still give you a loan even with a less-than-ideal credit score. 

You have high levels of debt 

Another requirement that most banks have is that you can only have a total debt-to-income (DTI) ratio of 44% or less to qualify for a mortgage loan. Private mortgage lenders would still consider you if you have higher DTI ratios.  

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Is A Private Mortgage Lender Right For You? 

When qualifying for a mortgage loan from a traditional financial institution is challenging, private mortgage lenders can provide alternatives.  

If you find yourself in the same circumstances as other Canadians who chose private mortgages, it may also benefit you. After you’ve reviewed your finances, a private mortgage can be what you need to reach your goals.   

Contact a Financial Solutions Specialist at Alpine Credits for a quote, free of obligation. They can answer your questions regarding mortgages and guide you through the application process.

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Frequently asked questions

As with any lender, private lenders also run the risk of the borrower defaulting on the loan. Since private mortgage loans are secured against the borrower’s property, the lender may acquire the house to compensate for the default

Getting a private mortgage is simpler for those with less-than-ideal credit scores. Many private lenders determine borrowers’ approval through other means, like the value of the collateral the borrower offers.

Many private mortgage lenders are safe sources of financing, but it’s always good to discern each lender’s credibility and reputation. Additionally, be sure to examine your financial situation and determine if their terms and conditions are within your ability.

Private lending is legal in Canada and is one way for people to receive funding despite having a lower credit score or inconsistent income. Private mortgage lenders are less likely to use your credit score or employment status to determine your eligibility for a loan.