Many Canadians dream of one day owning a home, but getting a mortgage from a traditional financial institution isn’t always easy. People who are self-employed may not be able to proof they have sufficient income, even when their cash flow is good. Others may be plagued with credit problems from their past. And still others may want a mortgage on a unique property or only for a very short term – which can be very difficult to get with a traditional lender like a Bank.
If you find yourself in any of these situations, then the best answer may be to get a private mortgage.
What is a private mortgage?
Simply put, a private mortgage is a home loan in which the lender is a private individual or company instead of a more traditional institution like a Bank. The lender could be providing the loan as an investment in which they earn interest from you or the lender could be a friend or family member who is providing the loan as a favour (though they still should be earning some interest).
Generally, private mortgages have higher interest rates than traditional mortgages since they are considered riskier investments. The terms on private mortgages however, do tend to be shorter. Therefore, if the reason that you need a private mortgage is due to poor credit, you should work on repairing your credit during the term of your private mortgage so that you can qualify for a lower-interest rate mortgage after your term is up.
Situations in which you should consider a private mortgage are as follows:
- Your credit is not good enough to qualify for a traditional mortgage.
- You are self-employed and don’t make enough income on paper to qualify for a traditional mortgage.
- You are a non-resident of Canada.
- You are looking to get a home loan on an unconventional property such as a tiny home or micro-condo.
- You need an immediate closing.
- You only require a mortgage for a short time period (such as one year).
Getting a private mortgage is often the best way for would-be homeowners who face these challenges.
However it should be noted, that private mortgages are not the right choice for everyone. Before getting a private mortgage, consider whether it might be better to spend an extra year or two renting and building up your credit. The last thing you want to do is to get into a high interest mortgage only to be forced to sell your home a few years later.
On the other hand, if you are in a position to make the regular payments and work on your credit, then a private mortgage may not only help you get into your own home sooner, but you can start on the path to building your wealth through home equity.
If you would like help in determining whether a private mortgage is right for you, contact me today!