In recent years, the popularity of a private mortgage in Canada climbed at an all-time high. Certified Mortgage Brokers offer good conditions, but getting the approval still may require several necessary steps from you. To increase your chances, you need to dive a bit into the world of private loans and see the situation from the lender’s eyes.
What is Private Mortgage
There are two main mortgage loans that most people are familiar with: the government one, and the bank one. The main difference between private and bank mortgages is that the former comes from a third party – a person (or business) who gives you money for your property purchase. Private mortgages may be offered for any type of property, but homebuyers usually turn to private lenders for residential purposes.
Why Private Mortgages Are Getting More Popular?
Like with any other loan, the main reason why people opt for a private mortgage instead of a bank one is that they are looking for better terms. In most cases, private lenders offer larger loans with lower interest rates than their bank counterparts. Additionally, your repayment period can vary depending on the lender you choose to work with.
How to get a Private Mortgage on Better Terms and Increase Your Chances?
To increase your chances of getting a private mortgage loan in Canada, follow these simple steps:
Check Your Credit Score
Research your credit score and find out where you stand before applying for private mortgage loans or any other financial services. If your credit score is low, you will find it hard to get a private mortgage loan. A person with a really low credit score will simply be denied.
Prove Your Income
You will be required to prove your income to the lender. To do that, you will have to provide them with an official document that proves that you can afford the payment of the loan. Make sure to not hide your salary, as it is against the law.
Understand Your Credit Report
Your credit report (often called “credit history”) is an accounting of all your financial affairs – including loan applications and outcomes. Use this information to better understand how banks and other lenders see you, and what you can do to improve your chances of getting a private mortgage. Look for reasons why mortgages got denied or approved in the first place.
Save for a Bigger Down Payment
Private lenders will require you to make a larger down payment than banks would ask for. Down payment is the amount of money you have to pay upfront when purchasing a property. To increase your chances, make sure that your down payment is at least 25% of the house value.
Get All the Paperwork Ready
Yes, you need a lot of documents to prove that you’re a reliable borrower. You’ll need documents to prove:
- Your income;
- Your work status;
- That you have enough assets to pay off your mortgage;
- That you are a citizen of Canada;
- Your credit history.
Each private lender is different, so check their requirements before submitting your application. Private lenders will also ask for detailed information regarding the property you want to purchase and the source of the money you are going to use for the transaction. Make sure that all important information is included in your application and that there are no blank spots on it.
Pay Your Existing Debts
Paying back the funds that you have borrowed before is your primary responsibility. Make sure that you have no active debt that you still owe. If there is little chance of this happening, don’t apply for a private mortgage loan. You wouldn’t get approved or you’d get approved with an extreme interest rate.
How to Find a Good Private Mortgage Lender
Now that you know what THEY will look at — do some research on your own. Here are some valuable tips on how to find the best mortgage broker in Toronto:
• Ask a family member or friend who already has one of these loans;
• Ask your real estate agent;
• Look for reviews on the Internet (but don’t trust them too much, the reviews are often faked);
• Compare deals and compare the terms. Not all mortgage brokers are the same.
The Bottom Line
There are many private mortgage lenders offering loans to potential homebuyers, so there is no need to put your house purchase on hold, wondering when you will find the money you need to purchase a house in Canada.