As you can see, there are several types of private FHA mortgage lenders: – Individuals who lend their personal money
The unions: a group of people who, from a common fund, grant private credits by evaluating, at first sight, the property to finance (category, region …) and, secondly, by taking some information about you.
Mortgage investment corporations made up of a group of investors who grow their funds by financing many projects at the same time.
Do private lenders have areas of expertise?
Several private FHA mortgage lenders grant financing for certain categories of property (a residence, a business, etc.). Others will agree to a private credit depending on the reason for the request (for example: refinancing to acquire a new home).
The area where the home is located can also influence the investor’s response. For example, a residence located in a large urban center will be a better investment for a private FHA mortgage lenders who will consider, first and foremost, its real estate value.
Other lenders will more easily finance a property near their place of residence.
Do you have to choose a private lender or financial institution?
It all depends on your situation and your goals.
In fact, the terms and conditions of private FHA mortgage lenders may be appropriate for you if you understand the benefits, the financial impact and the disadvantages of this type of private financing and if you use it wisely.
When to use a private lender?
Private lenders take advantage of the cautiousness of banks and other traditional financial institutions as well as the rigidity of the new government mortgage rules that exclude many people who, like you, can perfectly repay a mortgage.
For example :
Being self-employed and not reporting earnings (or declaring only one portion), your income is not auditable by financial institutions
You want to buy an unconventional home (micro-condo, mini house less than 600 square feet …) that traditional banks do not usually finance
You are a newcomer and do not have your Canadian citizenship yet
You only need a loan in the very short term (6 months to 2 years) for, for example, a real estate flip (low cost purchase – renovation – fast resale)
You need a mortgage finance approval as soon as possible to prevent your dream home from slipping through your fingers
Of course, it can also happen that your credit is contested, that you are late in paying your taxes or taxes, short, that you were experiencing certain financial difficulties.
How does private financing work?
Private lenders are wealthy people who act as investors, as they will earn interest on the private loan they give you so you can get the mortgage you need.
For them, this type of investment allows them to not leave their money in an account and earn profits.
They are therefore more interested in the municipal valuation and the market value of the property that appeals to you than in your credit history or financial situation.
As a result, private FHA mortgage lenders are more likely to estimate investment opportunities individually because each case is unique.
The procedure is therefore simpler and faster. Since there is no bureaucratic process, it is possible to receive your approval in two days and access your funds in two weeks.
However, since loans are riskier, it goes without saying that fees and interest rates will be higher (between 10 and 18%).
How much does it cost you a private mortgage loan?
To help you understand the importance of using this type of private financing with discretion, here is a scenario.
Ethan contracts a private mortgage loan of: $ 300,000
10% interest rate
2 years term