Buying a home as a first-time home buyer can be just as exciting as it can be stressful. Refinancing a mortgage can be the same and with good reasons. Potential home buyers and homeowners aren’t mortgage professionals, and they sometimes get overwhelmed by what seems like an easy potential experience when they start their mortgage shopping journey. Armed with interest rate trends and real estate stats, most think they have a good handle on the home-buying process and sometimes buy without getting a preapproval, thinking, “If I make a decent living, why wouldn’t I qualify for a mortgage?” Some people with great credit and high income get a private mortgage, which can be costly because they think that only two things matter when buying a property or refinancing a mortgage – Income and downpayment if you are buying or income and equity if you are refinancing. Working with a mortgage broker from the onset can alleviate common problems that borrowers face in a mortgage transaction that could result in them getting a private mortgage instead of a traditional one.
Why do mortgage borrowers need a Private Mortgage?
There shouldn’t be any guesswork in getting a mortgage. Most mortgage brokers and agents have guidelines from lenders they represent, so working with a client who might not have thought about their job tenure, credit, the amount of their downpayment, whether to buy and close before giving up three part-time jobs earning a significant income or take a full-time job earning less when you would have qualified with a traditional lender instead of having to go to a private lender for interim financing because of lack of proper planning. Gone are the days when there was a stigma that only people with bad credit need a private mortgage. The B20 Guideline and the stress test change introduced in 2018 made it more challenging for mortgage professionals to qualify some people on the fly.
In today’s high-interest rate environment, whether you are self-employed, purchasing additional properties as an investor, new to Canada with a limited credit history, seeking debt consolidation, looking to leverage equity for investments, or buying your first home, it’s possible that something in your credit, employment, could cause to end up getting a mortgage with a private lender.
Getting a Mortgage with a Private Lender
Getting a mortgage with a private lender can be very expensive, as fees can be up to 5% of the mortgage amount, which is 5% more than if you got a mortgage through a traditional lender. This up to 5% includes both lender and broker fees. Brokers aren’t paid by the lender in a private mortgage transaction, so to be compensated, they must charge the borrower.
Proactivity can be a game-changer in the mortgage process. Consulting with a mortgage broker six to eight months before making a purchase or refinancing your mortgage can lead to significant savings on private lending fees. This early intervention can help potential home buyers and homeowners make more informed decisions, potentially avoiding costly mistakes.
Remember, getting a private mortgage is a temporary situation caused by one or more reasons, for example, high interest rates, low income, or a lower credit score than traditional lenders require. By monitoring your credit and income, your mortgage could return to a conventional lender in as little as six months, depending on your unique situation. Are you in a consumer proposal? Do you have other credit issues? A lower income could put you in a private mortgage longer than a current impaired credit.
If you are ready to take the next step in securing your mortgage financing, we are prepared to help. The Sunlite Mortgage experience team is ready to guide you through the mortgage application process, offering personalized solutions tailored to your unique needs. Contact one of our agents today for a free consultation, or you could complete a preapproval, and we will be happy to connect with you and run some numbers to see how we can help with your mortgage needs.
