Uncategorized

Common Private Lending Questions

By January 14, 2018January 22nd, 2023No Comments

Great Private Lending Questions

If you are trying to take out a mortgage to buy that new house or simply needing to consolidate debt, but you’re having a hard time getting financing from a traditional lender; private lending is a great short term solution to get the financing.

FAQ QUESTIONS

Take a look at these great common private lending questions.

1. What is the contract interest rate?

Answer: Interest rates vary depending on  the current market conditions, property type, property location, property use, the size of the mortgage, and whether the mortgage is in 1st or 2nd position. Get in touch so that we can quickly assess your request without a credit check.

2. Are there any upfront fees?

Answer: There are no upfront Brokerage and/or Lender fees on Residential private mortgages.

There are 3rd party costs such as appraisals & home inspections (if applicable). Borrower Independent Legal Fees will also apply, but this is generally paid at the time of final signing or from the new mortgage proceeds. Confirm with your chosen lawyer.

Commercial Mortgages will have an non-refundable “Working Fee” after a LOE (Letter of Engagement) has been signed and returned.

3. What is the Loan-to-Value (LTV) that you can finance against a property?

Answer: Much like the contract rate, the LTV will vary depending on current market conditions, property type, property location, property use, the size of the mortgage, and whether the mortgage is in 1st or 2nd position. Get in touch so that we can quickly assess your request without a credit check. Below is a general recap of maximum LTV ranges (Some exceptions do apply):

Residential and Commercial Properties (With Existing Buildings)

  • Urban City Centres – 65% to 75%
    • Ex. $1M property would be a maximum of $650,000 to $750,000.
  • Rural Communities – 55% to 65%
    • Ex. $1M property would be a maximum of $550,000 to $650,000.

Land (No Buildings)

  • Urban City Centres – 45% to 55%
    • Ex. $1M property would be a maximum of $450,000 to $550,000.
  • Rural Communities – 35% to 45%
    • Ex. $1M property would be a maximum of $350,000 to $450,000.

Note: Additional quality real estate collateral can potentially increase the LTV.

4. What are the pre-payment penalties?

Answer: Pre-payment penalties vary depending on the type of deal and the objective, but the common industry standard on closed mortgages is 3-months interest pre-payment, or a fixed percentage of original registered principal amount. Some provide open or partially open options.

5. What are the fees associated with getting a private mortgage?

Answer: Fees Vary depending on the loan size and specific of the loan application. For a Mortgage Loan of $350,000; the Combined Brokerage & Lender Fees generally start at 2%-4% of the gross mortgage ($7,000 -$14,000). These Fees are deducted from the mortgage and are not an upfront out of pocket expense. For Mortgage Loans under $200,000, the Combined Brokerage & Lender Fees are a higher percentage of the gross mortgage due to the smaller loan size.

Examples:

  • For a Mortgage Loan of $150,000, the Combined Fees generally start at 5% of the gross mortgage ($7,500).
  • For a Mortgage Loan of $100,000, the Combined Fees generally start at 6.5% of the gross mortgage ($6,500).
  • For a Mortgage Loan of $50,000, the Combined Fees generally start at 8% of the gross mortgage ($4,000).
  • For a Mortgage Loan of $30,000, the Combined Fees generally start at 10% of the gross mortgage ($,3000).
  • Any Mortgage that is less than $30,000 is on an exception basis.

The Lender Legal Fees and Closing Costs are also deducted from the mortgage, and determined by the Lawyers.

Also note:

The Borrower Legal Fees are the responsibility of the Borrower. This is paid directly to chosen lawyer OR deducted from new mortgage funds.

The Borrower is also responsible for the appraisal costs. This is paid directly to the appraisal company.

6. What are my options at the end of the term?

Answer: As a property owner, it is your responsibility to put yourself in the best position possible to transition from private financing. When your maturity date is coming up, you will essentially have the following options:

  1. Renew – Subject to Lender Approval
  2. Refinance with a new Private lender – Subject to Approval
  3. Refinance with a non-Private Lender- Subject to Approval
  4. List the property for sale

7. If I don’t have enough equity in my property, do I still have options?

Answer: The options when property is lacking are few, but there are options. If the property is in an urban center or direct surrounding area and there is 10%-15% equity, the options would be as follows:

  1. Provide some cash injection to meet a private lender’s criteria for the loan to value requirements.
  2. If other property is owned where there is adequate equity, a blanket mortgage can be considered.
  3. Sell your property. If the equity is less than 10%, the suggestion is to simply sell your home if you are in a foreclosure situation. (Refinance Situations)
  4. Enter in to Lease Buyback program. This is when an investor purchases the property from the property owner. A separate agreement is also prepared by both parties with the intention of the home being purchased back at a pre-determined date. (Refinance Situations)

8. Are there advantages to using a specialized private broker over a direct private lender?

Answer: YES. Looking for direct private lenders can be time consuming. If a direct private lender is found, it is possible that they may not be regulated by their provincial body. Mortgage Brokerages are also regulated.  Our Brokerage primarily has 2 ways to directly assist:

    1. Amansad Direct Lending Group’s network of Individual Private Lenders (IPLs)
    2. MIC Partners

A majority of the mortgages provided are funded within our group of IPLs. In the event you are looking for a Bank/Semi-Traditional mortgage, we can direct or refer you after an assessment has been completed.

9. How long does the process take?

Answer: The process is relatively fast provided we are receiving requested documents in a timely fashion. We can generally fund with our Amansad Direct Lending Group within 5-7 business days after property appraisal/valuation has been received. This is provided there are no unforeseen delays.

10. What documentation will I need to provide?

Answer: A standard file will require is 2 pieces of Valid ID, a current mortgage statement, property tax assessment notice, an appraisal, and copy of home insurance policy. More documentation may be required depending on the facts of the file.

12. What sets Amansad Financial Services apart from other companies?

Answer: Turnaround time, brokerage firm pre-underwriting, and transfer of trust from our DLGN (Direct Lender Group Network)

13. Are payments interest only OR principal and interest?

Answer: Mortgage Payments with ADLG are generally interest only, but a single lump sum payment can be made towards the principal on each renewal without penalty. The cost difference over the course of a 12 month term is minimal. 

  • Assuming a 8% interest only on $100,000 would have a payment of $666.67 per month with a balance of $100,000 at the end of the term
  • An 8% principal & interest with a 30 year amortization would have a payment of  $724.71 per month with a balance of $$99,142.83 at the end of 12 months.

Because our private mortgages are meant to be transition mortgages, it makes more sense from an accounting perspective to keep the loan as simple as possible. 

Note: We do have some Lender Partners within and outside of our network that will provide principal and interest payments, or loans that are structured like Unsecured Merchant Cash Advance & Short Term Business Loans where the mortgage is paid out in 6-12 months.

14. What is the repayment schedule?

Answer: Payments are made monthly on the 1st or 15th of each month. Payments can also be partially prepaid, or fully prepaid with no payments during the term provided there is sufficient equity.

15. What are the steps in obtaining a private mortgage with your company?

Answer: The process is easy, simple, and efficient and can all be done from the comfort of home or using a mobile device or tablet; with exception of when you sign the final mortgage documents with the lawyer. 

  1. Complete Online No-Credit Check Prequalification
  2. Answer Clarification Questions
  3. Receive Quote/Assessment
  4. Complete Secure Full Application
  5. Provide Required Documents
  6. Complete Appraisal
  7. Sign Approval Documents
  8. Lawyer Prepares Mortgage Registration Documents
  9. Sign Mortgage Registration Documents with Your Lawyer
  10. File Complete

16. Can extra payments be made towards the mortgage without penalty?

Answer:

No. However, the mortgage can be paid out in full anytime after a pre-determined period without penalty. This period generally ranges from 90 days to 180 days depending on the details of each file and the Lender Partner. Lump Sum Payments can be made towards the principal on offered renewals. In most cases, it is preferred to make additional payments to your other debts to lower your debt ratio so that you have an increased chance to refinance with a non-private traditional lender.

Note: On some exceptions, if the mortgage is with a lender partners outside our network, a partially open mortgage may be made available.

17. How much down payment is required for a down payment?

The down payment required varies depending on the property location, property type, and overall specifics of the application.
For a Residential Urban Property with an existing dwelling;
  • Alberta, BC, and Ontario – 20% or greater
    • 15% – 20% on a exception basis
  • Saskatchewan, Manitoba – 25% or greater
For a Residential Acreage Property with an existing dwelling:
  • Alberta, BC, and Ontario – 30% or greater
    • 25% – 30% on exception basis
  • Saskatchewan, Manitoba – 35% or greater
Note 1: The down payment required to purchase  Raw Land, Farm Land, Commercial Property, and other property types will vary depending on the application details.
Note 2: Adding additional real estate collateral can help reduce or eliminate the need for a larger down payment. This is a referred to as an Inter Alia/Blanket Mortgage.
Note 3: Brokerage, Lender, and Legal fees are extra (See #5)
Note 4: Subject to Changes based on Market Conditions and Economic Activity.

18. What is the minimum and maximum loan size that will be considered?

The general loan minimum is $30,000; depending on the details of the loan request and total combined loan-to-value. In some cases, a smaller loan amount may be considered.

There is no maximum loan amount. We have a wide variety of Investor/Lender partners that are able to cater to jumbo sized loans. In some cases, the timing of the loan request determines the availability.

19. What is the minimum and maximum property value that will be considered?

The general property value minimum is $150,000 depending on the details of the loan request. In some cases, lesser amount may be considered it the request makes sense and/or if there is other real estate collateral.

There is no maximum property value.

20. Where are your offices located?

Amansad Direct Lending Group is a 100% Virtual Online Company with Registered Offices in BC and Alberta.

The Principal Broker (Daniel K. Akowuah) holds and Mortgage Agent/Associate License in Saskatchewan, Manitoba, and Ontario with Brokers For Life Inc (Brokerage).

The process is Tech Driven to allow for an extremely efficient process.

21. Why are some income documents required for an equity mortgage?

Despite a mortgage being an equity mortgage, due diligence is still required. For example, if a Brokerage places an individual into an equity mortgage without first verifying the need, they can expose themselves to legal action in the future for negligence which can in turn negatively impact the Property Owners position and also the Brokerage’s insurance policy. Generally, the information requested is not for qualification purposes, but instead for compliance.

22. What does APR mean?

APR means Annual Percentage Rate. It represents all the costs related to loan over the course of a year. It essentially the total interest costs and applicable fees. An APR provides a true cost of a loan. There are however some fees that are excluded from the APR calculation. See https://amansadfinancial.com/understanding-mortgage-apr-in-Canada/.

5 Steps To Success With Private Lending

If you’re going to obtain some private lending, you’re starting a relationship that will work a little differently than what you can expect from a bank or other traditional lender. Let’s take a look at some of the key differences, so you’ll know what you have in store.

Repayment History

Most people obtain private lending as a solution to get started on home ownership while they’re still repairing their credit. Private Lending is short term (often one to two years) and commonly allow for interest-only payments. Private lenders do not have to renew mortgages when the term expires, so you want to keep your options open by making your repayments on time.

Employment Changes

If you change employers during the term of a private mortgage, there are no requirements mandating that you update that information. However if you do provide that update, you strengthen your relationship with the private lender, showing that you are serious about bettering your financial situation. Even if you haven’t notified your private lender of the change, that may be a requirement for extending or renewing the loan.

Improving Your Credit

If you took out a private mortgage while you intended to improve your credit, there are improvement counselors who can help you get that score up. The purpose of this is to help you qualify for a bank loan when the private lending mortgage term expires – which will save you tens of thousands of dollars over the amortization of the entire mortgage.

Obtaining New Credit

Try to avoid opening new lines of credit, and keep your credit inquiries to a minimum during the term of your private mortgage loan. These activities can affect your score adversely, which definitely will not help you when it’s time to shift from private lending to a traditional lender.

The Value of Communication

Remember – a private lender is entrusting you with a great deal of capital. The clearer your communication is, the stronger your relationship will be. Private lenders are much more willing to work with borrowers who are honest and upfront.

NEED MORTGAGE FINANCE, REFINANCING,
OR A SECURED ASSET LOAN?

✔ No Initial Credit Check Inquiry (Only 30 seconds to complete)
✔ Same Day Response
✔ Fast, Efficient, & Friendly Service
✔ Private Mortgages are based primarily on Equity and the Property
✔ Bad Credit Mortgages are based primarily on Equity and the Property
✔ Traditional & Semi-Traditional Options also available
✔ Equity Based Secured Asset Loans

(The world moves FAST, RESPECTING your time is important.)

Amansad Direct Lending Group

Contact:
 PH:1(780)756-1119
 TF:1(877)756-1119
 FX:1(877)238-7794

Receive Our Newsletter!

Get Started Today with our Fast Pre-Qualification Form!