It is no secret that smaller cities in Ontario have an appeal for homeowners. Sudbury is no exception. With a host of things to do for families, beautiful surroundings, and a lower cost of living compared to its Toronto counterpart, buying property in Sudbury is on the rise.
For most of us, one of the biggest financial decisions to make in life is whether to buy a home. In Sudbury, as mirrored in the rest of the Province, real estate continues to appreciate, and buying a house is considered a wise and safe investment decision by most real estate professionals. Houses have historically and will continue to appreciate in value and as such investing in a Sudbury, property is considered a good decision.
Before a home can be purchased, the vast majority of Ontarians need to take out mortgage financing to cover the costs of homeownership. As very few individuals can pay for a home with a cash offer, well-established lenders are widely available in the Province to approve mortgage loans for interested homebuyers.
Different categories of lenders can negotiate terms on mortgage loans. While many may be under the impression that only the banks lend out mortgage financing, other lenders including trust companies and credit unions as well as private lenders provide mortgage options. The mortgage industry classifies these lenders under 3 broad categories:
- A Lenders– Banks and larger lenders. A lenders require very good credit, substantial, and easy to verify full-time yearly salary. These lenders will often ask for proof of additional assets, and routinely put borrowers through stringent mortgage stress tests that are increasingly harder to pass t secure mortgage financing.
- B Lenders-Credit Unions and Trust Companies. B lenders may not require such exemplary credit but salary and assets are still scrutinized when assessing mortgage eligibility.
- C Lenders– Private lenders (both individual and groups of private lenders). C lenders will be able to overlook damaged credit and work with less traditional based salaries including contract-based and freelance.
What is Required for a Private Mortgage Pre-Approval?
Along with requiring mortgage financing to purchase a home, it is also beneficial to go through the pre-approval process before searching for a home to buy. Private lenders will be able to negotiate terms on private secured mortgage loans based on your specific financial circumstances.
A pre-approval is essentially an estimate as to what you can qualify for in a mortgage loan. A lender will not be pulling your credit during the pre-approval process as a result, pre-approval will not affect your credit score. When the time comes to sit down with a lender and negotiate the terms of a mortgage loan, your credit will be pulled from either Equifax or Transunion.
What if your credit has been damaged? Private mortgage loans in Sudbury can be negotiated for a borrower looking for a principal mortgage as well as an existing homeowner that may be wanting to secure an additional mortgage on their property. If a borrower is looking for private mortgage financing for a principal mortgage, documentation will be required but credit will not be the main determinant and as such can be overlooked.
When you are preparing to seek pre-approval through a private lender it would be beneficial to take a few necessary steps to be best prepared to determine how much house you can afford and how much a private lender is comfortably lending out.
- Know your credit score and try to increase your credit score before seeking pre-approval.
- Gather all paperwork necessary including proof of income, investment statements, and proof of assets.
- Research good pre-approval rates.
- Be in contact with a broker for direction.
With any private loan, the interest rates associated as well as any fees that a private lender will be charging will differ from an A lender or B lender. While the banks will be able to offer very competitive and lower interest rates as well as minimal fees, they can do so because the mortgage loan is based on exemplary credit and substantial household income and perhaps additional assets that will make the loan inherently less risky for the bank to lend out.
A private lender will typically attach an interest rate of between 7% to 12% depending on the type of loan that is being negotiated and the unique financial picture a borrower presents. Fees associated with most private loans tend to range between 3% to 6% of the loan’s total cost.
When determining the eligibility of an Ontario homeowner for a second mortgage such as a home equity loan, Home Equity Line of Credit (HELOC), home renovation loan, consolidation loan, or other secondary mortgage option, private lenders will be assessing both the existing equity in your home as well as the current appraised value as well as any other assets that can be demonstrated to determine the mortgage amount.
Generally, a private lender will not lend out more than 75% of your property’s current value, which is referred to as a 75% Loan-To-Value (LTV). A private lender will also prefer to see 25% existing equity in your home. A loan with a higher than 75% LTV is deemed high-risk for a private lender.
What You Will Need For a Mortgage Pre-Approval
Although poor credit will not stand in the way of obtaining private mortgage financing, it will be required in the pre-approval process along with other documentation including:
- Proof of income including any pay stubs or invoices
- Proof of assets including any additional assets you have that could help to leverage a loan against
- Other sources of incomeincluding investment or rental income, spousal support
- Proof of downpayment including where all sources of the downpayment are coming from ( family gifted, RRSP, etc)
- Any Additional paperwork to support your application
Mortgage Broker Store Will Take you Through the Pre-Approval Process
At Mortgage Broker Store we will be able to provide for you the Automatic Private Mortgage Pre-Approval Tool. This tool will enable you to determine what types of loans you may qualify for which will take the questioning out of the mortgage approval process. Once completing the application, a PDF format of the pre-approval document is available which will be emailed to you for your reference.
The pre-approval process is beneficial, however, if the pre-approval tool indicates that you have not been approved, we will also be in a position to direct you to a private lender that will be able to negotiate a private loan based on your unique set of financial circumstances.
A private lender will look at your complete financial picture and use any existing sources of income and assets that you can demonstrate to negotiate a primary loan. The loan will be short-term in length. Private mortgage loans are structured to be short-term loans, unusually between 1 to 3 years. Mortgage financing is available to help restore credit and enable Ontario borrowers to fix any credit problems that will ensure favorable terms on any future mortgage loans.
