Access to home ownership is becoming increasingly difficult in Quebec. Many young people are unsuccessfully trying to obtain the necessary financing for the purchase of their first home from financial institutions, but without success. The demands of a steady job, steady income and a large down payment are all barriers to getting a first home. The situation is sometimes very similar for homeowners seeking to buy a second home or to realize any real estate project. It’s no secret that banks are tough opponents!
It would be wrong to believe that there is no alternative to go beyond these requirements. Private lenders are an energetic resource for many buyers who can not find the financing they need from a bank. You will see that private mortgages offer opportunities that financial institutions would never dare to offer! So if you are in such a situation, let us explain what the private sector has to offer you in terms of mortgage financing!
What is the private payday loan and why use it?
A private home payday loan is a mortgage payday loan from an individual or an institution other than a chartered bank. These private lenders operate under different rules and laws than traditional financial institutions, which gives them greater freedom of movement and allows them to offer services that their competitors can not afford. These are usually large capital groups who choose to lend their high-risk money in order to grow it.
In fact, so-called “charter banks” are subject to the federal laws governing the interest rates attached to real estate mortgages. This means that when you want to take out a mortgage for the purchase of a property, you will have to go through a large test battery to prove your ability to repay. This includes your credit history, your tax returns from previous years and your general financial situation.
The portrait is wasteful especially if you do not have at least 20% down payment. Indeed, the banks were forced to tighten their rules by the federal government a few years ago to require a more in-depth analysis of borrowers below the 20% down payment threshold. These laws apply to all banks, but here’s the trick: private lenders are not banks and therefore are not subject to these same rules.
Being safe from federal mortgage laws, these lenders can accommodate you in ways banks can not legally do. So let’s see in more detail what differentiates the private mortgage from the conventional mortgage.
Private Mortgage vs Conventional Mortgage
The multitude of options that come with the private payday loan makes it less intriguing. Given that lenders enjoy greater freedom of movement than banks, it is important to ask what are the advantages of disadvantages for each.
In other words, what are the elements of each payday loan that will weigh in the balance when making your choice? Here are some tracks for your reflection!
- The duration of the mortgage payday loan : Banks are interested in long-term payday loans. That’s what brings them the most, and that’s how they’ve been working for a long time. In return, a private payday loan may very well be spread over a shorter period of time, just a few months.
- Payment of interest : Many lenders agree to postpone the payment of principal at the end of the payday loan, opening the door to a reduced monthly payment. Indeed, as you will only pay interest every month, your payment will decrease and your freedom will increase!
- Accessible properties: The bank often has very different criteria depending on whether it is a primary residence or a secondary residence. The qualification of the property put in guarantee has a certain importance for her, whereas for the private lenders, she is guarantor of nothing. You have easy access to a payday loan to finance the purchase of a cottage, a vacant lot or a commercial space. The freedom of private lending in all its splendor!
- The justification of the payday loan : The private mortgage can be contracted for many reasons. These include the payment of debts, pensions, renovations and other reasons for items other than a residence. While banks provide payday loans almost exclusively for the purchase of a principal residence, and care about the reason for the payday loan, private lenders simply worry about your ability to repay, regardless of your personal reasons.
- Property as collateral: The bank wants only one thing as collateral for your payment: your principal residence. This is of paramount importance and of primary importance to them, and that is why financial institutions are hesitant at length before agreeing to put several assets in collateral. Conversely, private lenders are often willing to take many of your assets as collateral for payment, which, again, opens more doors than a conventional mortgage!
It goes without saying that the bank is, and will almost always be your first-line solution. We do not change the functioning of the financial world a hundred years old with a few well placed pen strokes! However, you notice very clearly that private lending can be a very beneficial option for a multitude of projects! Whether you have been refused by the bank or the funding granted is insufficient, you now know that a great ally is waiting for you in the private sector!
The private mortgage, the solution for the self-employed?
More and more workers today are putting their talents to their own advantage. In the age of technology and unconventional jobs, it is not surprising to see the number of self-employed workers emerge as never before. With such freedom comes however a disadvantage sometimes important: the one to be approved by the bank when buying a property.
It is no secret that banks are more hesitant to grant a mortgage to a person with self-employment status. The reasons are many, such as low tax returns for those who do not declare their entire income, inconstant incomes or faltering job stability. The bank always ensures its well-being before yours, which is why it is wary of self-employed workers whose “free worker” status does not always guarantee future stability.
So, what if the bank turns a deaf ear and refuses to follow up on your payday loan applications? The private mortgage could be a solution for you! As previously reported, private lenders, while operating in the same field as banks, have different rules. They are also much less hesitant to trust unconventional workers, since they do not have to pass your file through the thousand and one legal steps that banks must respect.
On the other hand, private lenders mostly look at your future ability to repay your debts rather than your history. So, if your credit report is not the most brilliant and you have made some financial missteps, this does not mean that private lenders will turn their backs, unlike banks!
As you can see for yourself, while these two mortgages work similarly, your chances of getting a private payday loan are much greater if you are self-employed because of the flexibility these lenders enjoy. Whether it’s buying a house, a second home or a real estate project, doing business with the banks is inevitably more complex for the self-employed. A good reason to consider the private sector as an alternative!
What is a second mortgage?
Another service that private lenders offer on terms different from those of banks is the second mortgage! Such a mortgage is defined as a second payday loan on the same property. To give a concrete example, a lender may agree to finance only a portion of your future property with a first mortgage, which will force you to seek a second mortgage to offset these insufficient funds.
It is therefore a way, for buyers in bad credit history, to have access to the status of owner. A second mortgage can also be used to refinance a home. Although a mortgage refinancing is the current option for this type of approach, the penalty fees it can cause are sometimes heavy to bear. A second mortgage is a viable alternative to this type of project.
But what can the private lender do more with second mortgages. There is no point in hiding the fact that the primary source of finance that buyers covet is the bank. Despite their monster demands, they remain a safe option to borrow. However, if you come to take a second mortgage on the same property, it may well be that you are not eligible for a bank payday loan. In any case, it is not tomorrow the day before that banks will agree to be in second place. And why this?
Because holding a second mortgage means that in the event of a default that leads to the seizure of the debtor’s property, the first mortgagee (often the mortgage of the bank) will be the first to use the mortgage. the goods of this first. So, the bank will exercise its right of seizure on the house to pay what is due to it, while the second mortgagee will have to wait until the bank has been paid to collect its due … or what remains of it at least. This is the priority of the creditors, and the banks often refuse to grant a second mortgage to avoid being at the back of the queue. What to do in such a case?
Private lenders are very willing to offer second mortgages at interest rates ranging from 12% to 14%. Thus, if you run out of funds to realize your real estate projects, but you are still able to secure a first mortgage, such a private payday loan could open the doors for the purchase of a property!
At what rate can I get a second mortgage?
Like any good answer to such a nuanced question: it depends! In real estate, the intrinsic value of a property is at the location level. Living in cities or rural areas inevitably affects the interest rate you will be able to obtain.
For example, private lenders are more inclined to offer advantageous rates to homeowners living in urban areas because of the value of their property often superior to those in rural areas as well as their proximity to the residence of the lender itself.
It is also important, when you take out a second mortgage, to consider the various fees associated with it. We are talking here about notary fees, the costs of evaluating your property as well as the costs related to insurance.
It is therefore tantamount to saying that the freedom of private lenders to set their own rates as they see fit also allows them to adjust their rates according to their property location, whether they are in the countryside or in the city. ! It’s up to you to see if your situation makes the option advantageous!
Quickly find a private lender to buy your home!
Newspapers abound with announcements from private lenders offering mortgage financing, debt consolidation or 60-day notice. No doubt about the ease of finding a private lender using a single phone call! But in such a sea of opportunity and in a sector where your neighbor next door can become a private lender, is it the most judicious choice of yours? We think not!