People can get money from the equity in their homes without having to change their current mortgage. This is called a second mortgage. A second mortgage is a home loan that the homeowner takes out before paying off their first mortgage in full. Using your home as collateral, you can get money to pay for projects, consolidate debts, and make big purchases.
When customers cannot qualify for a second mortgage with a bank or an institutional lender, private lenders provide more accessible alternative mortgage options. With a private second mortgage, lenders put a larger focus on a borrower’s home equity and worth rather than credit ratings or income. Banks often reject applicants owing to poor credit, a high loan-to-value ratio, or low income.
Private mortgage lenders are often private firms or people prepared to give interest-only first or second mortgages for a limited period of time. Canadians with credit ratings below 600 who want second mortgages will most likely seek financing from private lenders. Private mortgage lenders, unlike Canadian banks, are not regulated by the Bank of Canada, allowing them to determine their rates and qualifying conditions. Consequently, consumers with bad credit might get the funding they need at a higher interest rate.
When evaluating a second mortgage applicant, Canadian private lenders often look for four key qualifications:
- How much equity does the borrower have – The more equity an applicant has, the more money he or she may borrow for a second mortgage. Property equity is computed by deducting the current balance on your existing mortgage(s) from the current market value of your home.
- Is there a source of income for the borrower – In comparison to Canadian banks, private mortgage lenders need less income verification. Bank statements, in general, are sufficient documentation to demonstrate to private lenders that you have a consistent source of income. This is particularly beneficial for borrowers with modest incomes or who are self-employed.
- What is the borrower’s credit score? – While private lenders are less concerned with a borrower’s credit score for qualifying reasons, they use the credit scores to decide the interest rate on a second mortgage. The lower an individual’s interest rate, the better their credit score.
- What is the property’s worth? – Because private second mortgages depend on the property as collateral, if a borrower defaults on their mortgage, the home’s value is likely the most important factor in qualifying for a private second mortgage. A private lender will generally lend up to 90% of the home’s worth or loan-to-value (LTV).
To decide where to apply for your second mortgage, you must first understand your credit score. This will determine the sort of lender you will be able to work with.
- Second mortgage rates and qualifying conditions for credit scores ranging from 600 to 900 should first be checked with Canadian banks.
- Banks may accept credit scores ranging from 550 to 700, while some may find ‘B’ lenders to be their best choice for getting a second mortgage.
- Credit ratings below 600 will almost certainly need obtaining a second mortgage from a private lender.
Other situations in which private mortgage lenders maybe your best option for a second mortgage include:
- Buying a house that doesn’t look like the rest
- They have to be done when buying a home.
- You’ve been turned down by banks before.
- You have a bad credit score.
- Self-employed with income that isn’t clear
- The new person is coming to Canada for the first time.
- You don’t have a credit history because you don’t have a credit card
As long as you fall into one of the above scenarios or have a credit score below 600, it’s usually easy to get a private second loan. You will need the following documents and information to get started on your application.
- A driver’s license and passport are two forms of personal identification that people can use to prove who they are.
- The bank statements
- Your house’s estimated worth
Apply for your private second mortgage with Amansad!