What is a Private Mortgage?
Buying property is not always easy, and you may consider a private mortgage a viable option. A private mortgage is a mortgage from an individual or a bank that is not federally regulated. The mortgages are typically interest-only loans with terms ranging from one to three years.
Private mortgages are an attractive option for bridging your finances until your financial situation improves to make you qualify for a traditional mortgage. However, before you sign up for a private mortgage, it’s best to consult experienced business lawyers in Thornhill. They can advise you on all that goes into a private mortgage and whether it suits your situation.
What is the Difference Between a Private Mortgage and a Traditional Mortgage?
Financial institutions like a bank or mortgage lenders provide traditional mortgages. The loans come with guidelines, criteria, and restrictions a borrower must meet to get the loan. The policies are set by or with the consent of the federal government. The aim is to protect the lender and the borrower.
A private mortgage, on the other hand, is provided by a person or company that creates its own rules, qualification requirements, and regulations. These could differ for each borrower, making it riskier for both parties. Skilled Thornhill private mortgage lawyers can help you weigh the pros and cons of a private mortgage over the traditional one.
How Do Private Mortgages Work?
To secure a private mortgage, you can seek a lender independently or look for one through the expertise of an experienced mortgage broker. Before engaging with a lender, remember that private mortgages often attract higher interest rates than those provided by traditional mortgage lenders and banks.
When applying for a private mortgage, you may qualify quicker and easier than with a traditional mortgage if you meet certain requirements:
Proof of Income
You must prove that you have the income required to repay your mortgage. That can be challenging if you’re self-employed, so you must provide extra documents. You may also need proof of ownership of a sellable property that the lender can take possession of and sell to recoup their investment if you cannot repay the mortgage.
Private mortgage lenders often require borrowers to have a minimum down payment of 15% of the purchase price to qualify for the mortgage.
What Are the Advantages of Private Mortgages?
One of the benefits of a private mortgage is that it can be a non-arms-length transaction. That means you may have a personal relationship with the lender. For example, you could get a loan from a family member or buy a house from them. A private mortgage can provide more flexible terms than a traditional home loan.
However, avoid reaching an agreement without a legal contract just because the person is known to you. Skilled Thornhill private mortgage lawyers can represent your interests in the transaction and protect your rights if the deal goes sour.
When Should I Consider Getting a Private Mortgage?
Private mortgages provide more flexibility compared to traditional mortgage loans. However, they’re also more expensive, and their amortization period is shorter. Private mortgage lawyers in Ontario can help you evaluate the following factors that you should consider before going for a private mortgage:
- If you have a bad credit history, you may not get approved for a traditional mortgage loan.
- You’re short of time and need the money more quickly than it would take to navigate the process for a traditional lender’s approval process.
- A traditional lender refuses to finance you for an unconventional home you’re interested in buying, such as a commercial property or inherited house that needs repairs.
- You need a short-term loan as you await approval from a traditional lender.
- You cannot confirm your income to meet the requirements for mortgage approval by a conventional lender.
- You’re a foreign national in Canada, and your credit history and income from the other country make it difficult for you to qualify for a traditional mortgage.
As you go through these factors, it’s also important to remember that private mortgages attract harsh penalties if you fall behind on your repayments. Private lenders also foreclose on properties faster than traditional lenders. Some private lenders may also lack the experience, requirements, and education of licensed mortgage lenders in handling the transaction.
Can I Qualify for a Private Mortgage With Bad Credit?
One of the most common reasons Canadians consider private mortgage is bad credit. To qualify for a traditional mortgage, you must have a credit score of at least 680. A score lower than that means you have to put off your house purchase until you have a better credit score or consider other alternatives like a private mortgage.
If you’re considering a private mortgage as an option due to a poor credit score, start by confirming that you can make your monthly payments on time. At the same time, start taking the necessary steps to improve your credit score, such as:
- Paying your other debts faithfully
- Maintaining a good credit mix
- Keeping a low balance on your credit cards
Taking a private mortgage whose payments you can’t keep up with will further damage your credit score. Consult skilled business lawyers in Thornhill, Ontario to help you weigh your options before getting a private mortgage.
An Experienced Private Mortgage Lawyer Helping You Make the Right Decision
Private mortgages have gained a lot of attention in Canada lately. They are viable options for home buyers with a bad credit history, no traditional income, and who need a short-term loan as they await approval for a conventional mortgage. If you’re considering a private mortgage, ensure experienced Thornhill private mortgage lawyers review the documentation to protect your rights.
Our business lawyers in Thornhill understand how complex private mortgages can be for various reasons. We advise that you get into a private mortgage contract with the help of a skilled legal expert to help you weigh the pros and cons. Contact us to schedule an initial case assessment.