A private mortgage is a type of mortgage loan. The money comes from a person, business or other finance providers, making them an option for people needing extra funds for a home. The main difference between a private mortgage and a conventional mortgage is the source of funds. A conventional lender will only lend money to those with higher credit scores. In contrast, a private lender has more flexibility with credit and income.

To obtain a private mortgage, you must have a down payment of at least 20%. Because these lenders typically charge higher interest, they are more likely to beat inflation with their loan rates. A private lender will also be more likely to benefit from tax benefits. However, it is essential to remember that private lenders will be more expensive than a conventional lenders.

To qualify for a private mortgage, you must have a good credit score and make a down payment of 20% of the purchase price. Because they are not insured, private mortgages have higher interest rates and fees. It’s best to get advice from your real estate lawyer if you consider a private mortgage.

How do I get approved for a private mortgage in Ontario?

Getting a private mortgage is one of the fastest ways to buy a home. Approval can happen pretty quickly, and the whole process typically takes a few days. The process requires basic information, such as your income, credit score, and assets. Most private lenders will also require a current credit bureau as well as proof of income to ensure the monthly payments can be made.

It is critical that borrowers have the required funds to close the transaction. This includes down payment (or current equity for a refinance) as well as related fees.

How fast can I close a private mortgage?

If you have decided to purchase a private mortgage, you may be wondering how long the process will take. This is primarily due to the time needed to review your application, process your documents, and have the lender review the file. A private mortgage typically requires three business days to close. You can speed up the process by getting a preapproval and obtaining a letter of intent which will improve your chances of closing your loan as soon as possible.

If you decide to use a private mortgage lender, you should ensure that the application is complete and accurate. Many lenders have automated systems that make the process easier and quicker, but you should check this yourself. The application should include the buyer’s personal information. The lender should also be listed as an additional insured on the homeowner’s insurance policy. This gives the lender a financial interest in the property.

There are two ways to speed up applying for a private mortgage. The first method is to work with a real estate attorney to prepare a loan. The attorney will ensure that the loan complies with provincial and lender guidelines. Most private lenders require borrowers to pay for property taxes and homeowners insurance. Moreover, the lender should be listed as an additional insured in the homeowner’s insurance policy. This will give the lender an ownership interest in the property.

Private mortgage lender rates and fees in Ontario?

Private lender rates for first mortgages are currently in the range from mid-6% to mid-9%. For private second mortgages, the rates range from the mid-10% to mid-12%. While private mortgages may not be for all borrowers, they can be an attractive option for borrowers with bad credit, limited income, or declined by traditional lenders. 

Fees will include a lender fee of approximately 1% and higher and a broker fee (typically the same as the lender fee). Borrowers are also required to pay for all appraisal and legal fees.

Most of these loans are interest-only, and many borrowers find their monthly payments are reduced considerably, which can significantly impact their credit score.

How long does it take for approval?

The approval time for a private mortgage in Ontario can be very fast, from a few hours to a few days. All you need to do is provide basic information about yourself and your finances. Typically, private mortgages require a down payment of at least $75,000, but you can opt to pay more. In Ontario, you typically don’t need to provide your income verification.

Private lenders will consider your credit score, your down payment, and your investments when considering your mortgage rate. A higher credit score and more significant income will help you qualify for a lower mortgage rate. However, you can still be eligible for a mortgage with poor credit if you have a sizeable down payment. If you don’t have a lot of money to put down, you can try getting a mortgage with your home equity.

You can learn more about private mortgages, including some of the frequently asked questions, in more detail.

If you have any other questions or would like to inquire about your suitability for this solution, we would be happy to help. Please contact us at (905) 351-8440 or info@thethemortgageguyniagara.com and we can review your options!  For our undivided attention, you can also book a call by clicking the button below.

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