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Private Mortgage Lending Most Common Questions

If you are trying to take out a mortgage to buy that new house, but you’re having a hard time getting financing from a traditional lender, a private lender can step in and get you into that home with a short-term note that gives you the time to get your credit squared away so that a bank or brokerage will approve your application in a year or two. 

Take a look at these questions below that many of our clients have asked in the past.

Answer: Interest rates vary depending on the down payment, existing equity, mortgage position, property type, ability to verify and the application. Generally, the more you can provide the more options that are available. Land only, Modular Homes, and other non-conventional properties are also subject to higher interest rates.

A typical private lending first mortgage on a residential property of 50% LTV warrants an 8% – 9% annual yield from a private lender. A general rule of thumb is for every 10% the LTV increases the annual yield increases by 1%. The Annual Yield is a combination of the contract rate and lender fee for each year. Brokerage Fees are extra.

A typical private 2 mortgage on a residential property starts at a 12% – 14% annual yield rate regardless of the LTV and will increase as the LTV increases. A general rule of thumb is for every 5% the LTV increases over 65%, the annual yield increases by 2%. The Annual Yield is a combination of the contract rate and lender fee for each year. Brokerage Fees are extra.

Answer: There are no upfront fees on residential private mortgages. With a construction completion mortgage, though, the customer does have to pay a broker fee after gaining approval. In addition, commercial mortgages require an upfront retainer brokerage fee due to the complexity and time required to execute such transations.

Answer: On your typical residential property in an urban centre, private lenders will loan up to 80% of the property value. We do have access to lenders that will lend greater than 80%, but there needs to be a either a clear and quick exit strategy and/or a favorable 1 st mortgage in place. Smaller rural communities are generally maxed out at 60% of the property value, with some lenders in the network that will consider 70%. ***Some exceptions apply to all files.***

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. No pre-payment penalties will apply to a fully open mortgage.

Answer: Combined Brokerage & Lender Fees generally start at 4% of the gross mortgage on mortgages greater than $150,000. Combined Brokerage & Lender Fees generally start at 10% of the gross mortgage on mortgages less than $150,000.

Private Mortgage Lending Most Common Questions 1

 

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

  1. Renew with your existing lender. Good Repayment history is required for the Lender to consider.
  2. Refinance with a new private lender. All costs associated with securing a private mortgage will apply again.
  3. Refinance with a non-private lender provided you qualify. Minimal costs are associated with this option.
  4. List the property for sale and move.
  5. List the property for sale to an investor and become a tenant with an agreement to buy-back in the future or be a permanent tenant. If the above options are not exercised, the lender can/may initiate power of sale foreclosure proceedings.

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)

Answer: This is a “YES” and a “NO”. First and Foremost, looking for direct private lenders through various website and newspaper ads is time consuming. If a direct private lender is found, it is unlikely that they are regulated by their provincial body. Mortgage Brokerages are regulated. The best option for anyone in need of private money is to obtain the funds from parents, family, or friends that are in the position to assist you. This may not be available nor a desirable option.

Dealing with just any broker isn’t recommended either. Many mortgage professionals find private lendingto be foreign. The downside to this is that they may not be familiar enough with private lending to provide adequate service. In addition, some mortgage brokers are too proud and will not inform their customers that they are unable to effectively work your application; so, they will instead shop your application or refer to another brokerage that is comfortable working on your file. While doing this, as a customer you end up paying fees for multiple brokers and the lender. Not the wisest decision.

Amansad Financial does not your files to other brokers. Once we have everything required for your application, a summary is presented to our DLGN (Direct Lender Group Network) without providing your confidential information or property details. Direct Private Lenders will basically get your first name, the property type, property value, a general location, the LTV ratios, and some background information. Our partners generally confirm interest within 2 business days, but in many cases the same day. When LTV’s exceed 80%, we have secondary options with our MIC partners.

Answer: The process is relatively fast provided we are receiving requested documents in a timely fashion. On average, once an appraisal, application, and supporting documents are received, a commitment can be issues in 3 days or less, but in many cases within 24 hours.

Answer: On standard urban residential properties where the combined mortgages on the property value is less than 65%, basically all this required is 2 pieces of Valid ID, a current mortgage statement, property tax assessment notice, an appraisal from an approved appraisal, and copy of home insurance policy. This is classified as equity based approval. When the LTV exceeds 65%, more documentation is needed such as appropriate income verification which varies depending on each file.

Answer: This is always a consideration. At times, there may not be enough equity in the primary property, so if you own other real estate with adequate equity, this will be considered. This is referred to a “blanket mortgage” or “Inter Alia” mortgage. This type of mortgage is not offered by traditional or semi-traditional lenders on residential real estate. It is only offered by private lending institutions and individual lenders.

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

15 FAQ REGARDING PRIVATE 1st MORTGAGES

Answer: There are a few differences between standard first position mortgage and a home equity line of credit. Standard 1st position mortgages offer fixed rates for a fixed term. Home equity lines of credit have rates that fluctuate with the prime rate for the financial institution. Home equity lines are revolving credit lines that only require an interest only payment each month. Home Equity lines of credits are also demand loans that can be called at anytime by the Financial institution. That is a rare occurrence, but is generally triggered when the loan holder financial situation has a very negative change. Fixed rate mortgages are either interest only payments, or have a payment due each month with a portion going to pay down both principle and interest of the loan. Interest only option is more common with private lenders since they are meant to be short term. In both cases; both can be registered in 2nd position. 

Answer: Yes. Provided the 2nd mortgage holder grant priority to a new 1st mortgage. In most cases, this is only granted if the new mortgage amount is not increasing, and if the overall terms are more favorable to the 2nd mortgage lender. In most cases, it just makes more sense to refinance the 1st & 2nd mortgage.

Answer: For Sure. If there is adequate equity and your request makes sense, it is 100% possible.

Answer: A typical private lending first mortgage on a residential property of 50% LTV starts at 6% – 8% plus applicable fees. A general rule of thumb is for every 10% the LTV increases the annual yield increases by 1%. The Annual Yield is a combination of the contract rate and lender fee for each year. Brokerage Fees are extra. Land, Modular Homes, and other unique properties are subject to higher interest rates.

Answer: There are no upfront lender or broker fees on residential private mortgages. Commercial mortgages have upfront fees on a case by case basis.

Answer: Combined Brokerage & Lender Fees generally start at 4% of the gross mortgage on mortgages greater than $150,000. Combined Brokerage & Lender Fees generally start at 10% of the gross mortgage on mortgages less than $100,000. Mortgages loans from $100,000 – $150,000 are generally somewhere between 4%-8% depending on the file.

Example: $100,000 Gross Mortgage.
$100,000 – Principal Gross Mortgage
– $10,000 – Total Brokerage/Lender Fee (10%)
– $3,000 – Lender Legal & Title Insurance
= $87,000 – Net to Customers


Example: $400,000 Mortgage
$400,000 – Principle Gross Mortgage
– $16,000 – Total Brokerage/Lender Fee (4%)
– $3000 – Lender Legal & Title Insurances
= $381,000 – Net to Customers
*** Borrower is responsible for Own Legal Fees & Closing Costs. ***

Answer: The time put into smaller and larger sized mortgages are generally the same. It would not fair to charge 10% fee on a larger mortgage, and it also would not be cost effective to reduce the fee on a smaller sized mortgage. Every situation is different, and there are cases where an exception is warranted.

Answer: On your typical residential property in an urban centre, private lenders will loan up to 80% of the property value. We do have access to lenders that will lend greater than 80%, but there needs to be a either a clear and quick exit strategy and/or a favorable 1 st mortgage in place. Smaller rural communities are generally maxed out at 60% of the property value, with some lenders in the network that will consider 70%. ***Some exceptions apply to all files. ***

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 amounts. Some provide open or partially open options. No pre-payment penalties will apply to a fully open mortgage.

Answer: The process is relatively fast provided we are receiving requested documents in a timely fashion. On average, once an appraisal, application, and supporting documents are received, a commitment can be issues in 3 days or less, but in many cases within 24 hours

Answer: Possibly. If the funds will be used to invest or for business purposes, the interest can be a taxable benefit. Consult with your accountant.

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

1. Renew with your existing lender. Good Repayment history is required for the Lender to consider.
2. Refinance with a new private lender.
3. Refinance with a non-private lender provided you qualify. Minimal costs are associated with this option.
4. List the property for sale and move.
5. List the property for sale to an investor and become a tenant with an agreement to buy-back in the future or be a permanent tenant.
(If the above options are not exercised, the lender can/may initiate power of sale foreclosure proceedings.)

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.
4. Enter in to IPR (Investor Purchase Refinance). This is when an investor purchases the property from the property owner, and the property owner signs a lease as a tenant.

Answer: On standard urban residential properties where the combined mortgages on the property value is less than 65%, basically all this required is 2 pieces of Valid ID, a current mortgage statement, property tax assessment notice, an appraisal from an approved appraisal, and copy of home insurance policy. This is classified as equity based approval. When the LTV exceeds 65%, more documentation is needed such as appropriate income verification which varies depending on each file.

Answer: This is always a consideration. At times, there may not be enough equity in the primary property, so if you own other real estate with adequate equity, this will be considered. This is referred to a “blanket mortgage” or “Inter Alia” mortgage. This type of mortgage is not offered by traditional or semi-traditional lenders on residential real estate. It is only offered by private lending institutions and individual lenders. As an Alberta Based Mortgage Broker with DLC Brokers for Life Inc.; Amansad Financial provides traditional bank financing, non-traditional, and private equity creative solutions to customers. Amansad Financial focuses on Alt-A, Private Equity Lending & Alternative Mortgage Solutions. If a borrower doesn’t fit a bank mold but have the necessary down payment or equity; obstacles can be overlooked with our private mortgage lending partners. With adequate equity or down payment, security, or a combination of both… a solution will likely be found. Borrower credit is the least of our worries.

PRIVATE 2ND MORTGAGE, EQUITY LOANS

Answer: There are a few between second mortgage and home equity lines of credit. Second mortgage offer fixed rates for a fixed term. Home equity lines of credit have rates that fluctuate with the prime rate for the financial institution. Home equity lines are revolving credit lines that only require an interest only payment each month. Home Equity lines of credits are also demand loans that can be called at anytime by the Financial institution. That is a rare occurrence, but is generally triggered when the loan holder financial situation has a negative change. Fixed rate second mortgages are either interest only payments, or have a payment due each month with a portion going to pay down both principle and interest of the loan. Interest only option is more common with private lenders since they are meant to be short term.

Answer: Yes. We provide second mortgages behind existing 1st mortgages all the time. If you have a great rate on your first mortgage there is no reason to pay it out and refinance. Taking out a new second mortgage is a great idea to access your home equity for debt consolidation, debt restricting, business, home improvements, judgments, tax liens, etc. As long it makes sense, a second mortgage is a possibility.

Answer: No. The first and second mortgage are totally independent.

Answer: For Sure. Credit is the least of our concerns. Provided there is adequate equity and your request makes sense, a private First or Second Mortgage is possible.

Answer: On standard urban residential properties where the combined mortgages on the property value is less than 65%, basically all this required is 2 pieces of Valid ID, a current mortgage statement, property tax assessment notice, an appraisal from an approved appraisal, and copy of home insurance policy. This is classified as equity based approval. When the LTV exceeds 65%, more documentation is needed such as appropriate income verification which varies depending on each file.

Answer: The process is relatively fast provided we are receiving requested documents in a timely fashion. On average, once an appraisal, application, and supporting documents are received, a commitment can be issues in 3 days or less, but in many cases within 24 hours.

Answer: There are no upfront lender or broker fees on residential private mortgages. Commercial mortgages have upfront fees on a case by case basis.

Answer: The time put into smaller and larger sized mortgages are generally the same. It would not fair to charge 10% fee on a larger mortgage, and it also would not be cost effective to reduce the fee on a smaller sized mortgage. Every situation is different, and there are cases where an exception is warranted.

Answer: Combined Brokerage & Lender Fees generally start at 4% of the gross mortgage on mortgages greater than $150,000. Combined Brokerage & Lender Fees generally start at 10% of the gross mortgage on mortgages less than $100,000. Mortgages loans from $100,000 – $150,000 are generally somewhere between 4%-8% depending on the file.

Mortgage Examples

 

Answer: A typical private 2nod mortgage on a residential property starts at a 10% plus applicable fees. A lender yield generally starts at between 12% – 14%. A general rule of thumb is for every 5% the LTV increases over 65%, the annual yield increases by 2%. The Annual Yield is a combination of the contract rate and lender fee for each year. Brokerage Fees are extra.

Answer: Wondering how much equity can you take out of your home? On your typical residential property in an urban centre, private lenders will loan up to 80% of the property value. We do have access to lenders that will lend greater than 80%, but there needs to be a either a clear and quick exit strategy and/or a favorable 1st mortgage in place. Smaller rural communities are generally maxed out at 60% of the property value, with some lenders in the network that will consider 70%. ***Some exceptions apply to all files. ***

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 amounts. Some provide open or partially open options. No pre-payment penalties will apply to a fully open mortgage. FAQ 10: How long does the process take? Answer: The process is relatively fast provided we are receiving requested documents in a timely fashion. On average, once an appraisal, application, and supporting documents are received, a commitment can be issues in 3 days or less, but in many cases within 24 hours.

Answer: Possibly. If the funds will be used to invest or for business purposes, the interest can be a taxable benefit. Consult with your accountant.

Answer: This is always a consideration. At times, there may not be enough equity in the primary property, so if you own other real estate with adequate equity, this will be considered. This is referred to a “blanket mortgage” or “Inter Alia” mortgage. This type of mortgage is not offered by traditional or semi-traditional lenders on residential real estate. It is only offered by private lending institutions and individual lenders.

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

1. Renew with your existing lender. Good Repayment history is required for the Lender to consider.

2. Refinance with a new private lender.

3. Refinance with a non-private lender provided you qualify. Minimal costs are associated with this option.

4. List the property for sale and move.

5. List the property for sale to an investor and become a tenant with an agreement to buy-back in the future or be a permanent tenant. If the above options are not exercised, the lender can/may initiate power of sale foreclosure proceedings.

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. 4. Enter in to IPR (Investor Purchase Refinance). This is when an investor purchases the property from the property owner, and the property owner signs a lease as a tenant.

5 Steps to Success with your Private Mortgage

If you’re going to take out a private mortgage, you’re starting a relationship with a lender 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 take out a private mortgage to get started on home ownership while they’re still repairing their credit. Private mortgages generally have short terms (often one to two years) and sometimes just allow 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. Your credit score will improve (increasing your chances of a transition to a bank or other traditional lender at renewal). If you realize that you need to adjust your withdrawal date for a particular payment, give your lender at least a week’s notice.

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 will be a requirement for extending or renewing the loan in many cases.

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 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 loan. These activities can affect your score adversely, which definitely will not help you when it’s time to shift from a private lender to a bank or 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.

Amansad Financial Process

  1. Application sent to applicant(s)
  2. Application returned & reviewed
  3. Appraisal Completed & Commitment Issued
  4. Commitment returned & sent to DLGN
  5. Commitment is signed off by DLGN & instructed to Lenders lawyer

Most Other Brokerage Firms

  1. Applicant sent to applicants
  2. Applicant returned & reviewed
  3. Applicant sent to 1 private lender for underwriting.
  4. Underwriter sends to Lending Committee for review
  5. Commitment returned to brokerage firm if approved. If not approved, go back to step 3 with new lender
  6. Commitment Issued by Brokerage firm to applicant(s) with summary of terms and conditions
  7. Commitment returned to brokerage firm
  8. Commitment sent back to Private Lender by Brokerage Firm
  9. Lender Committee completes final review
  10. File Instructed to Lenders Lawyer for closing provided key conditions are satisfied by applicants.

As an Alberta Based Mortgage Broker with DLC Brokers for Life Inc.; Amansad Financial provides traditional bank financing, non-traditional, and private equity creative solutions to customers. Amansad Financial focuses on Alt-A, Private Equity Lending & Alternative Mortgage Solutions. If a borrower doesn’t fit a bank mold but have the necessary down payment or equity; obstacles can be overlooked with our private mortgage lending partners. With adequate equity or down payment, security, or a combination of both… a solution will likely be found. Borrower credit is the least of our worries.

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Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
Toll Free: 1(877)756-1119 | PH:1(780)756-1119 | FX:1(877)238-7794
 DLC Brokers for Life Inc. (Brokerage) - 2nd Floor, 5303 91st Edmonton, AB T6E 6E2

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