How to Secure Easy Financing through a Private Mortgage Lender in Canada

If you have bad credit, have irregular income, depend on foreign income, or are new to Canada and don’t have employment history, a private mortgage is well suited to you.

What Is a Private Mortgage Lender?

A private mortgage is part of a private corporation or an individual that lends out money in a non-traditional way. There are some conglomerates where money from private investors is pooled to fund syndicated mortgage. A private lender doesn’t accept any deposits from individuals and aren’t regulated by the federal or provincial government.

If you’re borrowing through a private lender, the mortgage will tend to be shorter with higher interest rates and fees when compared to traditional lenders.

Private Mortgage Lenders Throughout Canada

It’s becoming more popular for homeowners to go with private lenders so they’re playing an important part in the housing market throughout the country. The CMHC has reported that non-bank lenders have loaned $183.61 billion worth to Canadians in 2021 alone. Many of the loans came from credit unions with over 300,000 loans coming from private lenders. This includes mortgage finance companies, investment entities, and trust companies.

Financing Through a Private Lender

It’s actually a lot easier than you think even if you don’t qualify for a loan at one of Canada’s big banks. If you don’t quality for a mortgage from a big bank in Canada like The Bank of Montreal, Scotia Bank, or TD Bank for example, you can turn to a private mortgage lender. A private loan usually comes from an individual investor or a group or investors who are willing to lend money out. They don’t have such high restrictions when it comes to lending money.

More Canadians Are Now Turning to Private Mortgage Lenders

The Canadian housing market has been at an all time high over the past few years. There were extremely low interest rates as well. While things have settled down a bit, the market is still hot. Mortgage rules at the big banks have become more conservative despite the fact there’s never been a better time to buy a home.

For Canadians that feel it’s time to buy, a private mortgage lender can be what’s necessary to get into your home. For those who have been denied a mortgage, they are now turning to private lenders so they can get into a home. Private mortgage lenders are now accounting for up to 5 percent of the mortgage market.

A private mortgage works for Canadians that don’t qualify for the constrictive rules by big banks. You don’t have to put a lot of money down and you’re under less scrutiny. There have been changes in who can qualify for a mortgage from big banks including:

  • The amortization period for a mortgage has been reduced to 25 years
  • Minimum down payment for a mortgage back by the government has been raised to five percent.
  • The minimum down payment for non-owner-occupied properties is a minimum of 20%.
  • As a first-time homeowner, you need a credit score of at least 620.3.
  • Canadians that are self-employed have to put down a larger down payment and have more documentation as well as better credit scores

Benefits of Using a Private Mortgage Lender

If you have don’t have a large down payment, a private lender is still willing to lend you money. Big banks will only fund 80% of the property but a private lender finances you for much more. If you’re self-employed, you won’t have to prove third-party validation through a private lender. The big difference with a private lender and a traditional lender is that private lenders get money from investors.

The application process is much easier with a private lender. The focus is more on the property that you’re planning to purchase. Private loans aren’t insured to lenders want to make sure the property is as valuable as what you’re paying for it in the event you default on your loan.

Private Lender Fees

Private lenders aren’t subject to the Canadian regulations so they can set whatever fees and conditions they want. This is why it’s important to shop around so you can get the best possible rates. You’re borrowing a lot of money so even the smallest reduction in fees and interest can make a huge difference. Some lenders will charge a higher percentage with no fees while other may offer a lower percentage but the fees actually make it more expensive.

Look at all the parameters of your loan and make sure you understand it before making a choice. Fees can include:

  • Private lending fees
  • Brokerage fees
  • Legal and appraisal fees
  • Set up fees
  • Administration fees

How to Find a Private Mortgage Lender

Private mortgage lenders only work through mortgage brokers. A mortgage broker will help you find the best mortgage for your financial situation. They can negotiate with the lender and submit all the necessary documents. In turn, they may be compensated by the lender. However, transparency is always a must. They’ll let you know if they get commission or any type of compensation for suggesting a specific lender.

Frequently Asked Questions About How to Secure Easy Financing Through a Private Lender in Canada

How do private lenders work in Canada?

A private lender doesn’t accept deposits from the public. They are not regulated on a federal or provincial level. Private mortgages are shorter so your monthly rates will likely be quite high. The interest rates and fees are generally higher.

How much does it cost to use a private lender in Canada?

With a private mortgage lender, they’re likely to charge a fee for lending you money. This is usually around 2% of the amount of money you’re borrowing. The fee is compensation for the private lender as they administer your mortgage, find private investors that are willing to give you the money for your property.

How long does it usually take to get a loan from a private lender?

Two to five business days. Getting a loan through a private lender generally takes less time than the big banks. Some of the smaller banks and credit unions will take a bit longer but it’s usually going to be less than a week no matter who you work with. Opting in for direct deposit from your bank account will get your money to you the fastest.

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Loraine Couturier

Loraine Couturier is a Canadian that has been working as a freelance writer for the past ten years, specializing in topics that include personal finance, medical journals, and the online gaming industry. She is a published author, digital marketing expert and an authority in the fields in which she writes about.