The Benefits of Private Lending
As I have mentioned in some of my previous blogs the mortgage lending landscape has changed over the past few years. Lenders and insurers have become more discerning when approving mortgage applications and it is even more challenging to those with damaged credit and those who are self-employed. The good news for self employed individuals is that one insurer has re-released their stated income product and for those with credit issues (for whatever reasons) there is a whole new group of lenders that have entered the market…….private lenders.
You may be familiar with private lenders as individuals who have some extra money to lend at a relatively high interest rate and substantial fees. They are still around; however, the emerging private lenders are groups of lenders - big groups like Mortgage Investment Corporations (MICs) and Real Estate Investment Trusts. (REITs). These lenders offer considerably more flexibility for borrowers and offer products to those who may have some credit challenges or their income has been inconsistent. For those who would prefer to get a mortgage with minimal proof of income or assets, there are options available from private lenders. New home builders are becoming more interested in private financing because of the flexibility.
In traditional lending, the current big banks' five-year fixed posted rate is 4.64%. The average discounted rate for mortgage brokers is approx. 2.64%. Variable rates for mortgage brokers are as low as prime minus .65% or 2.05%
The new private lending market is divided into three camps - prime, sub-prime and sub-sub-prime. The prime private lenders will offer interest rates that equal the bank's posted rates or a point or two higher. Sub-primes rates will be from 7% to 10%, and sub-sub-prime lenders will offer rates of 10% and higher. Some will not charge fees, but most will. Fees vary and usually start at .5% and go up from there.
The upside is private lending rules and guidelines are more lenient than banks or monoline lenders since they are determining those rules for themselves. Many will consider the equity position only, while others will look at income and the overall picture. Most will ask for a credit report, but don't give it too much weight.
Here are some scenarios where private lending can help:
- If conforming lenders won't approve a loan due to bad credit
- If you need only a short term mortgage loan
- If you are self-employed and have non-confirmable income and don't qualify for the stated income product
- The purchase has to close quickly
- Property values are very high
Private lenders also tend to specialize, for example, within a property type or investment. Some prefer urban areas or lending in familiar regions.
Call me today to find a lender who will meet your individual need.
Thanks much Shaun and if you can add my usual blog blurb with my name and contact info at the bottom that would be great! J
Jerry Sims, AMP
TMG The Mortgage Group Canada Inc.
Jerry Sims is a licensed Mortgage Broker
with TMG The Mortgage Group Canada Inc.
and a member of the Canadian Association of
Accredited Mortgage Professionals