Owning your property does come with certain advantages beyond the obvious appeal of being able to call it your own. One advantage that not all Toronto homeowners may have considered is the ability to tap into existing equity in your home. This hard-earned equity will be able to free up funds to put towards other short-term financial goals and priorities.
The reasons behind accessing existing home equity vary. Perhaps you would like to take care of some of those pressing home repairs that you have put on the back burner during the Covid pandemic. After sitting in your back garden during the summer months you may have determined landscaping that may provide for a backyard oasis and further increase the value of your Toronto property.
A Toronto homeowner may have household debts outside housing and mortgage monthly costs that are difficult to cover. A cash infusion from home equity in the form of a second mortgage loan would help to both pay down high-interest debt and merge multiple debt payments into one manageable monthly payment, enabling all monthly housing costs to be covered more easily.
Certainly, during the prolonged pandemic, the Toronto housing market has flourished. Outperforming the years leading up to the pandemic. Toronto homeowners are in the enviable position of seeing significant property gains.
According to Ontario Real Estate Association (OREA), the year-over-year increase in the Toronto housing market in August 2021 as compared to the same month in 2020 represents 22.6%. These impressive gains put the average price of a Toronto single detached property at $1,086,625.
These numbers are very encouraging for Toronto homeowners. What if you have damaged credit? Banks, as well as trust companies and credit unions, will be able to negotiate a second mortgage based on available home equity, creditworthiness, and degree of household income.
If a Toronto homeowner has poor credit, limited income, or substantial household debt it may be best to turn to a Toronto-based private lender. Private lenders will be able to offer short-term financial help while giving sufficient time to repair credit for any other loan applications down the mortgage road.
What Do I Need to Be Able to Qualify for a Private Lender?
When considering a private mortgage loan, it is always best to be prepared and bring with you as much documentation as necessary to help facilitate the private loan application process.
It is also beneficial to know what exactly a private lender will be basing his/her mortgage loan approval on. Although poor credit and limited household income will not be a barrier to private mortgage financing, a private lender will be assessing:
- The degree of the existing equity in your property
- The recent appraised value of your property
- The current state of your property
- The location of your property
- Taking into consideration any underlying structural issues such as foundation problems or water damage
- Calculating the Loan-To-Value (LTV) on your property based on your home appraisal and the above criteria
A private lender will need to see at least $70,000 of the existing equity after the requested mortgage is placed, in order to approve the request. This equity is what will constitute your mortgage financing, enabling you to use these funds for short-term economic priorities.
When determining the Loan to Value (LTV) on your property a private lender will scrutinize the most recent appraisal on your property. For any private second mortgage options, a private lender will comfortably lend up to 75% of the current value of your home. Lending beyond 75% of the appraised value of your home is deemed a high-risk loan and a private lender will try to mitigate risk.
This 75% LTV will be most applicable to urban properties in desirable locations. For properties outside the city, a private lender will tend to loan up to 65% LTV to help reduce any potential risk for the lender when recouping mortgage funds.
So, what should a Toronto homeowner bring to a meeting with a private lender? As preparation is the key to private mortgage success it is best to have all your ducks in a row when meeting with a potential private lender which includes:
- Look into a pre-approval if you are applying for a first mortgage
- Gather all relevant paperwork
- Know your current credit score
- Pull and research a recent credit report
- Research private lending options in your area
- Arrange to sit down with a private lender
- Know what type of loan you feel would address your short-term financial needs
- Bring a recent appraisal and proof of the degree of equity in your home
- Any relevant employment documentation.
Poor credit will not deny a Toronto homeowner a private second mortgage, however, It is advisable to do whatever you can to improve your credit score. Consider working to pay down high-interest debt if you can. Continually make an effort to pay any liability payment on time and in full if possible. The better your credit ultimately will give you the most favorable terms on your final secured mortgage agreement.
Mortgage rates on all types of private mortgage loans are generally between 7% to 12% with any associated fees ranging from 3% to 6% of the loan’s total cost. Although these rates may be higher than the banks will charge, they enable a homeowner/borrower more flexibility, are negotiated faster than traditional mortgage financing, and are structured as short-term loans (usually between 1 -3 years).
How Do I Find a Private Mortgage Lender?
After deciding to pursue the route of private mortgage financing, the pressing concern for many is just how do I find a reputable private lender? Answering this question boils down to a few trusted methods including:
- Private lender referrals from mortgage brokers in the industry
- Researching private lending options in your area
- From those homeowners/borrowers who can personally recommend the services of a given private lender
A mortgage broker can help negotiate private mortgage financing directly depending on your unique financial circumstances and reasons for seeking private mortgage financing. Additionally, brokers will be able to direct you towards private lenders throughout Toronto and the surrounding GTA who can negotiate a private mortgage loan with terms that will reflect your financial picture.
Private Mortgage Lenders vs. Banks
When comparing mortgage financing through the banks and private lenders the required criteria demanded by the banks simply are not obtainable for some Toronto homeowners.
The mortgage approval criteria for the banks are based primarily on strong credit and proven substantial household income. If credit is an issue, a Toronto homeowner will not be able to pass the rigid mortgage stress tests that the banks routinely put borrowers through before approving mortgage loans.
Beyond income and credit, there are other compelling reasons to consider private mortgage financing including:
- The ability of private lenders to offer short-term mortgage financing
- The ability of private lenders to negotiate the terms of a private mortgage loan quickly. Approval can take as little as 1-4 days with the loan process completed in a few short weeks
- The process is very straightforward
Private Lender Fees
Typically, the interest rates associated with most private mortgage loans tend to range between 7% to 12% depending on the financial picture presented by a given homeowner. Most private loans only require the homeowner to pay interest on the mortgage during the mortgage term.
There will also be fees associated with private loans. These fees will cover both the lender's fees and broker fees to process a private loan option. In general, the fees charged by most private lenders will be between 3% and 6% of the total cost of the mortgage loan.
Mortgage Broker Store Will Help Direct You Towards Private Mortgage Options
If you are a Toronto homeowner/borrower who would like to obtain mortgage financing, don’t let credit issues stand in your way of taking out hard-earned equity from your property to pay for needed expenses.
Mortgage Broker Store has access to a broad network of private lenders in the Toronto area with specialized knowledge of the private mortgage sector. A private lender will be able to sit down with you and discuss your options directly which will help you achieve your mortgage goals.