If you are looking to purchase a home, your first If you are looking to purchase a home, your first step should be to contact your mortgage broker in order to get a home loan. But what if traditional lenders turn you down because your credit isn’t good enough? Or what if they turn you down because you want to buy an unconventional type of property? Or what if you only want to live in the home for a short time and don’t want to get locked into a five-year term?
These are all scenarios in which a private mortgage might be your best bet.
A private mortgage is just like the name suggests. It is a mortgage which is owned by a private individual or company. Some private mortgages are owned by investors – they are in the business of loaning you money to purchase your home and they make their money by the interest that you pay back to them.
Other private mortgages are owned by friends or family members of the homeowner. They do this in order to help you out. They may still charge you interest, but it is usually quite a bit less than an investor would charge.
The most obvious benefit of getting a private mortgage is that it allows you to become a homeowner when you otherwise might not have. Individuals with poor credit, those who are self-employed or new to Canada, or those who wish to purchase unconventional properties can all have difficulty getting a mortgage through a traditional lender such as a bank.
Private lenders, however, tend to look at the bigger picture and ultimately make the decision based on whether they think granting you a private mortgage will be a good investment for them. So if you are motivated and have a high probability of making your payments, there is a good chance that you will get approved.
Those who are fortunate enough to have a friend or family member grant them a private mortgage even have the further benefit that the mortgage will likely have a fairly low interest rate as well
Even though there are several advantages to getting a private mortgage, there are some drawbacks as well.
Private mortgages are considered riskier than traditional mortgages – so if they are being offered by investors, they will have a higher interest rate.
If the private mortgage is being offered by a friend or family member, the interest rate may not be as high, but you should stop and consider how taking them up on their offer might affect your relationship – especially if you become unable to pay.
If you think that a private mortgage might be right for you, it is essential that you consult with a mortgage broker. There are many reputable private lenders out there but also a few scammers – and your mortgage broker can let you know which ones are which.
Furthermore, your mortgage broker has relationships with private lenders that you would not be able to access on your own.
Even if you wish to get a private mortgage with a friend or family member, it is important to meet with a mortgage broker who can help you ensure that everything is legal and that you are both protected.
To learn more about private mortgages, contact me today.