A private lender should be used as your last resource. It is usually not accessible to the general public so if you are interested in learning more, email us at cchien@mortgagegrp.com
There are three key factors a private lender looks at:
- Credit: applicant’s credit should range > 420
- Income: usually applicant cannot prove their ‘hard income’, in other words, the income shown on T4 or T1 (line 150) are not sufficient to qualify
- Property: residential, small commercial, light industrial, factual interest *1
*1 Party A divorcing Party B, joint tenancy (undivided interest) thus becomes factural interest as ‘tenants in common’
FACTS ABOUT PRIVATE LENDING MONEY
The rate from private lenders as first mortgage would range from 9% – 14%. Most private lender would charge a standard 2% -6% service fee on the borrowed amount.
The maximum loan is 90% of the purchase price. For equity take out (refinancing), the loan-to-value ranges between 80-85%. Maximum LTV depends on the deal risk and property location.
If the private money is used for 1st mortgage, the interest rate ranges from 7.25-12%
If the private money is used for 2nd mortgage, the interest rate ranges from 9.5% – 15%, and the equity take out will range from 10.5% – 16%.
Service fee goes higher as the file gets riskier.
Again, private lending should always be used as the last resource for borrowing because of its high cost. However, mathematically, it does not raise weighted average interest rate as drastically as you would think, and it makes your deal work!
A friendly suggestion to all home buyers and real estate investor, unless you can pay down 35%, it is wise to obtain a ‘mortgage pre-approval’ to understand your price range. It is free and you can lock the lower rate for 120 days.
Filed under: Private Lending
