Are private lenders emerging from the shadows?
Are private lenders emerging from the shadows?
In the current economic landscape, private lenders, long associated with the more unconventional side of the mortgage business, have become an indispensable asset. With the traditional mortgage industry constrained by stringent regulations and risk-averse policies, private lenders have emerged as a lifeline for borrowers facing various challenges, from credit issues to unique property types.
There was a noteworthy article written in this Saturday’s Journal de Montréal entitled, « Des hypothèques à 15% chez des prêteurs privés : La famille perdait la maison si on ne faisait rein pour les aider. »
See article complete article: Journal de Montréal
In summary,
Private lenders are increasingly helping families in Canada who can't secure bank loans for home purchases. These "alternative loans" have surged by 63% in two years, according to the Canada Mortgage and Housing Corporation (CMHC). Banks' stricter income requirements have led more people to explore private lending options. While these loans have grown, they still represent a small portion of the market, accounting for 6.7% of loans in Quebec in the third quarter of 2023, up from 4.1% in 2021. Experts caution borrowers however, to carefully consider terms and not rush into agreements.
There are several reasons why someone might choose to use the services of a private lender for their mortgage needs. Private lenders are typically non-traditional financial institutions or individuals who provide mortgage financing outside of the conventional banking system. The following are situations where individual’s might opt for a private lender:
Poor credit history: if a borrower has a low credit score or a history of financial difficulties, they may have difficulty securing a mortgage from a traditional lender.
Self-employed: people who are self-employed may find it challenging to prove their income and qualify for a traditional mortgage.
Fast approval and funding: private lenders can often process mortgage applications more quickly than traditional lenders.
Unique properties: traditional lenders may be hesitant to finance unique or unconventional properties, such as vacation homes, fixer-uppers, or properties with non-standard construction.
Bridge financing: private lenders can provide bridge loans, which are short-term loans that help borrowers cover the gap between the purchase of a new home and the sale of their existing one.
Debt consolidation: some borrowers may use private lenders to consolidate high-interest debt into a mortgage, potentially lowering their overall monthly payments.
Lack of documentation: traditional lenders often require extensive documentation, including tax returns, pay stubs, and bank statements.
Investment properties: individuals looking to purchase investment properties, such as rental units, may choose private lenders, especially if they already have an existing portfolio of investment properties.
Renovations or construction: borrowers who want to renovate their home or build a custom property might prefer private lenders who can provide construction or renovation financing without the rigid requirements of traditional lenders.
Home equity loans or second mortgages: borrowers looking to tap into their home equity for various purposes, such as debt consolidation, may seek private lenders to obtain a second mortgage or a home equity loan.
It's important to keep in mind that private lending can be riskier due to the higher interest rates and less regulated nature of these transactions. There have been instances of predatory lending in the private mortgage market, leading to cautionary tales and concerns about unscrupulous lenders taking advantage of vulnerable borrowers. Trust in private lenders can vary based on their reputation, track record, and the terms of the mortgage agreement. Borrowers should conduct due diligence, carefully review the terms of the private mortgage, and seek the help of a mortgage broker to ensure they fully understand the implications of their choice.
If you find yourself in a predicament, and wish to know how a private lender could help you bridge the gap. Call or email Fred and Martin Mortgages. We will be happy analyze your file, and then find you the best private lender in-line with your financial needs. Best of all, it’s free and could save you thousands of dollars.
Fred and Martin