Private mortgages can be a short term solution as a step towards qualifying for a conventional loan after your financial situation has changed (usually in one year). Since we can make equity-based decisions, we are able to offer flexibility to think outside the box. However, it’s important to understand the different lending criteria that private lenders such as ourselves may have before applying. This can help you avoid any surprises down the road and make sure you are getting the best mortgage for your needs.
When processing loan applications, we consider:
Property type, location, and value
Part of mortgage lending is to evaluate risks, and when it comes to properties, there are a few things to consider. We look at the type of property (e.g., single family home, condo, etc.) and its location (e.g., in a major city or rural area). The value of the property also plays a role in our decision making, as we want to make sure that the loan amount is appropriate for the market value.
Down payment and equity
For home buyers who are looking to finance their purchase, we will consider the size of your down payment. The Loan-To-Value (LTV) ratio is a key metric for private lending, which is calculated by taking the loan amount divided by the appraised value or sale price of the property (whichever is less). For example, if you are looking to purchase a home for $500,000 and you have a down payment of $100,000, your LTV would be 80%. Our LTV criteria varies by location, risk level, and property type.
For those who are looking to refinance their property, we will assess the amount of equity you have in your home. Home equity is the portion of your home that you own outright, and it can be calculated by subtracting any outstanding mortgage balance from the appraised value or sale price (whichever is less). Some may want to take advantage of the equity they’ve built in their home and finance a construction, while others may want to use the equity as a downpayment for a new house prior to selling their current home.
We need to be confident that you will be able to make your payments, so we will look at your current and past income as well as your employment situation. If you are self-employed or if you are commission-based, we may require additional documentation, but we have options for Business For Self (BFS) borrowers that allows the flexibility they need to find the right home for them.