All posts by Joe Walsh
Private Mortgage Supply
“Private Mortgage Supply Can Quickly Come And Go For Any Given Deal”
I have written previously about not only how quickly a private mortgage can be approved and funded, but also how quickly the commitment put forward and disappear.
Let me explain with the assistance of a real life example.
The other day we took on a new private lender who has money they wish to place in the Ontario market at this time.
The individual is a seasoned private lender with a very clear idea of what they’re looking for in terms of providing private mortgages.
And right now, they have $3,000,000 to invest in mortgages.
Many times private lenders will get a lump of cash from the payout of a mortgage, or their primary source of revenue produced additional revenues that now need to be investment.
In any case, the good private lenders approach is always the same…they want to get their money out in the market as quickly as possible because its not making much for them sitting in their bank account.
So for a period of time, a lender with money will intake deals and put out term sheets and commitments to fund.
If a borrower does not act on an issued commitment quickly, the private lender will move on to the next opportunity and place their money.
Supply Availability Can Be An Issue
With Private Mortgage Financing
For every private lender out there, there will be times when they have money available and times when they don’t.
And for the larger market as a whole, this is not a big problem as lending opportunities gravitate to those that have money available at a given point in time.
If there is a surplus of available cash among lenders in a certain geography, the cost of funds can do down and the reverse can hold when the money supply gets tight.
But where private mortgage money supply can become a major issue is when you have very specific financing requirements that the average private lender is not prepared to meet.
In these cases, when you get a commitment provided to you that is within your acceptable range, you’d be well advised to take it and take it quickly as the private lender is not likely to wait for you.
If you come back to them at a later date, they may not have any money to put out at that time. And you might have a hard time finding a suitable and acceptable alternative.
This is also a good reason to work with a private mortgage broker that has access to lots of private lenders as there will always be individual lenders that are in and out of the market at any given time.
So if you’re going to utilize the expertise of a broker, you want to make sure he’s going to be able to direct you to lenders that have money to lend when you need it.
90% Stated Income Mortgages
“You Can Secure A Stated Income Mortgage For Up To 90% Of The Purchase Price”
The stated income mortgage market is continuing to evolve with more lenders breathing new life in this lending space which for the most part had been abandoned by several lenders over the last year or so, or at least the available programs have failed to resemble what was previously available to self employed individuals.
At the present time there are some solid and continuing to develop products in the market with the best in class providing up to 90% loan to value on new home purchases.
You can get up to 65% loan to value without mortgage insurance and anything over 65% to the 90% ceiling will require mortgage insurance.
Both fixed and variable rate options exist as well to provide greater flexibility to each borrower.
The main qualifying criteria are that you need to be able to prove that you’ve been in business for at least two years, that you have very good credit, and the cash you’re putting in for the down payment is from your own resources.
There is some greater flexibility today in the documentation lenders will accept to support your stated income. The key is that there must be a certain amount of reasonableness in the income declared and the means to which it can be supported. Gone are the days when the lender will take your word for it which only makes sense in terms of anyone making a proper lending decision.
One of the bigger challenges to some business for self individuals is the maximum loan amount they can secure.
For larger urban centers such Toronto or Vancouver where real estate pricing can be fairly high, some of these programs will not be able to provide enough financing to fit your requirements even if you could otherwise satisfy all their other lending and funding requirements.
The upper limits to stated income mortgages are also likely to increase provided that lenders experience a low occurrence loss, default, and payment arrears.
One of the real keys to getting the best stated income mortgage deal available to you is to put forward a very strong and complete information package to targeted lenders. This increases the possibility of greater flexibility being provided on acceptance of documents that you have available to support your earnings.
In order to put together a solid application package, it can make a great deal of sense to work with an experienced mortgage broker who can not only help you put everything together, but also identify the self employed mortgage programs in the market that best fit your particular circumstances and requirements.
There definitely is a certain amount of art and science to stated income mortgages, so being able to draw on some know how and experience can make a big difference.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh For A Free Assessment Of Your Stated Income Mortgage Options
Subprime Commercial Mortgage Challenges
“Getting Acceptable Pricing On A Subprime Commercial Mortgage Can Be Challenging”
I have previously defined the sub prime commercial mortgage space as an area of the market that is just below the qualifying requirements of “A” lenders.
One of the challenges of securing a sub prime mortgage is finding rates and terms that are acceptable to the borrower.
Borrowers that have this type of deal, have a hard time believing that they can secure an “A” mortgage rate, so they persist in earnest trying to get financing that is just not available to them.
When sub prime options are explored, and because there is always more demand than supply, lenders tend to try and charge more due to limited available funds.
So there can be quite a gap between the “A” rates that you can almost qualify for and the “B” rates that are available to you.
In most cases, a subprime mortgage is short term property financing facility that will provide the capital necessary to move forward and provide the time necessary to work into cheaper money.
So in the end, sub prime rates are never going to be optimal, but they do allow financing to take place.
The challenge is finding a subprime interest rate that is acceptable to you and can be “cash flowed” somehow until cheaper money can be made available.
But unlike most “A” lenders, subprime lending sources tend to work through brokers, which means that the access to them can be harder to come by.
Even if you end up working with a mortgage broker that works in this part of the market, there is certainly no guarantee that they can place your deal as there can be great divergence among the financing programs offered by the secondary market.
So selecting a broker to work with that has broad access to what we can also call the alternative commercial property mortgage market is going to be important.
Even more helpful still is being able to provide a solid and complete lending package to a broker for review so they can more quickly determine if they are in a position to provide financing assistance to you.
Precious time can be lost trying to understand the deal and putting in applications to lenders that are not highly relevant.
In the end, getting an acceptable subprime commercial mortgage rate is going to start with understanding the rate you can afford versus focusing on a certain rate range you feel justified in asking for. From there, its all about working with the right professionals that can not only lead you to subprime commercial money, but also to a deal structure that can work in your budget.
And focusing on sub prime options sooner than later will provide a greater probability of getting a reasonable rate versus spending a larger chunk of your available time pursuing an unlikely “A” credit solution, and then be left scrambling to try to secure a subprime commercial mortgage with time running out on your deal or requirements.
If you are exploring subprime commercial mortgage options, I would welcome the opportunity to go over your situation and see if we have any potential solutions for you.
Click Here To Speak With Toronto Mortgage Broker Joe Walsh For A Free Subprime Commercial Mortgage Assessment
construction and development financing
“Apply For Construction And Development Financing Now Before The Start Of The Spring Building Season”
We are now heading into the last week of January which brings us that much closer to the start of the spring construction season.
Certainly there is construction year round in Ontario, but the bulk of all completed work happens in the period between snow falls.
So while many land development and building projects are in the planning stage for completion in 2013, the financing to carry the cash flow of many of the projects has not even been applied for yet.
As I have previously written, the working assumption for property owners, builders, and developers is that lining up financing will be an easy, straight forward process that can be started and completed just before the work commences.
This can even be the opinion of experienced borrowers that have difficulty in the past with the project, but still put off getting the funding in place for their next project to next to the last minute.
In my opinion, waiting to close to the time you’re going to want to start building is always asking for trouble which leads to delays and worse.
Getting construction financing or a land development loan in place and getting a good deal collectively require time to target the right sources of financing for your particular project type and geography.
By starting early, you may even find that you have time to make adjustments to the plan and budget that better meets a lender’s criteria versus force feeding the final project plan onto rigid lenders, hoping to get a financing fit.
For example, for certain types of projects relevant lenders may have approved contractors or even approved material sources that need to be used for any projects they end up financing. If the lender offer is a great fit for your needs, but you can’t meet certain requirements that could have been addressed earlier in the planning process, then a potentially optimum financing commitment will be lost when it didn’t need to be.
Lenders can also require incremental third party reports to support valuations, cost estimates, and so on. If there is not enough time to complete the requests for incremental data, you once again can lose out on otherwise acceptable and perhaps preferred financing.
And when that happens, you can’t assume that the alternative construction loan source you end up working with is going to provide as good a rates or terms.
So if you have a real estate development project or construction build of some form that will require construction financing in 2013, the two keys to getting the financing in place that you require is to 1) start early, and 2) work with an experienced mortgage broker that has placed construction loans for your type of project, in your geography.
Click Here To Speak Directly With Toronto Mortgage Broker Joe Walsh For A Free Options Assessment
Commercial Property Loan
The Sources Of “A” Credit Commercial Property Loan Will Vary By
Property Type And Use
If you have an “A” credit financing scenario for a commercial property, then its likely that a low cost commercial property loan can be secured.
But depending on the property and its use, there can be considerable variation among lenders in terms of interest in the deal and rates and terms that can be offered.
Larger income producing properties will attract the most attention from main stream lenders, so there is likely not going to be a challenge to locate a market competitive deal.
Where it can be a challenge is with smaller value properties with more specialized uses.
Commercial properties such as gas stations, self storage facilities, and so on can have an excellent financing profile, but will not be of interest to all lenders at all times in all areas.
This is where it can be some work to get a commercial property loan in place that provides the rate and terms you’re looking for.
Timing can be a significant factor in this regard as well with lenders coming in and out of the market according to the strength and weighting of their portfolio towards different types of properties.
For instance, its not uncommon to see some of the major banks run hot and cold for lending on specific property types according to their own needs more so than the market.
One of the keys to locating and securing a commercial property loan, especially for a more niche type of real estate, is to 1) start early, and 2) get some assistance from a financing specialist.
Considerable time can be wasted knocking on the wrong doors, leaving you scrambling to come up with any type of option that will work with the time you have available.
And as I mentioned earlier, the offerings that can exist in the market can vary considerably from one “A” lender to another, so its important to be working with enough market intelligence to be able to zero in on the options that are most relevant to you situation and requirements, at the time that you will require the funding.
Every commercial property loan will be secured by mortgage security as well, so you will have to consider the type of mortgage agreements offered by relevant lenders as well as the type of mortgage registration and subordinate mortgage restrictions that may come with an approval for funding.
While in general the mortgage market as a whole has more options for commercial financing now that in the recent recessionary period starting in 2008, more options can also create more complexity in understanding the different options available to you.
This is still another reason why working with an experienced mortgage broker can be beneficial to ending up with a commercial property loan that meets your requirements now and into the future.
If you have a commercial property financing need right now, or are planning ahead for a future requirement, I suggest that you give me a call so we can quickly go through your situation together and discuss some of the different options that are likely going to be available to you in the “A” credit market.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh
Private Mortgage Logic
“Private Mortgage Financing Is
Make Sense Lending”
As things start getting back to speed here in the early part of January, 2013, I wanted to talk a bit about private mortgage lending and how it should be looked at as a source of financing.
Private mortgages fall into what we call the sub prime lending category which basically includes all non bank or institutional lenders that do not price their financing off the prime rate.
In many cases, private money is a secondary form of financing, but that doesn’t have to be the case, especially when time is of the essence.
You will see references to private mortgages as hard money as well and there is many degrees of hardness to consider depending on the financing request and the lender.
And perhaps this is the best place to have a discussion on what I’m referring to as private mortgage logic.
Hard money definitions, for the most part, are focused in on equity lending where the equity in real estate is the primary consideration for making a loan. The term hard can relate to a number of different things depending on who you’re talking to such as hard to find money, hard to work with if payments are not made, hard cost or higher cost of funds and so on.
As a private mortgage broker, the one hard money notion that makes very little sense to me is that money can be procured from a private lender where the risk of loss to the lender is disproportionately higher than their potential return.
The idea here is that true hard money can be acquired for situations that don’t make any sense from a risk and reward point of view, but because a high interest rate will be charged, private investors will still advance money.
One of the most common examples of this is the $0 down mortgage to someone with some combination of poor credit and cash flow.
While it is certainly possible to get this type of private mortgage, its not probable, and the reason why is that it doesn’t make economic sense for both the borrower and the lender.
For the most part, private loans are secured by equity in real estate so in the event of default the private lender has the ability to foreclose on the borrower and recoup the money advanced without it costing them any money.
This is what we call “make sense lending”.
And each situation is going to be different.
There will be situations where the loan to value considered by a lender will be higher than the average and situations where its also lower.
But what is true far more often than not is that each deal must stand on its own merits and if the risk of lending and the cost associated with that risk make sense to both the borrower and lender, then its very likely financing will be able to be arranged.
When this is not the case, the money will certainly be “hard” to find.
Some people conjure up images of private lending similar to some type of loan shark where if you don’t get paid someone is going to break your legs and high risk lending can be justified in this fear of retribution fashion.
But in reality, this couldn’t be further from the truth, at least in anything I have seen or been a part of over many years of working in the mortgage business.
Private lending exists because their is a viable need for it in the market place that is not being met by banks and institutional lenders. This is true for both residential and commercial property lending.
Private lenders are investors that choose private mortgages as an investment vehicle no different than any other type of investment where the potential return and investment risk or weighed before any money changes hands.
And if a lending scenario is presented that allows the lender to acceptably manage their risk of loss in exchange for a cost of financing acceptable to the borrower, then a loan agreement can be entered into.
The bottom line here is that lending requests that don’t make business sense or the don’t have any common sense to them will not likely attract private money.
Understanding this can save you a lot of time chasing after something the highly unattainable.
That being said, there are also no absolute rules when it comes to private lending either as individual lenders can also do whatever they choose. But once again, just because something is possible doesn’t make it probable.
Click Here To Speak With Toronto Mortgage Broker Joe Walsh For A Free Assessment Of Your Private Mortgage Options
Rental Property Financing Challenges
“Tighter Rules And Lower Lender Appetite Contributing to Rental Property Financing Challenges”
With all the changes in the mortgage financing rules related to residential property, one of the hardest hit areas of the market is the rental property financing or investment property mortgage category.
In a nut shell, the new rules are going to require that you have a down payment or equity component of at least 20% (can be higher in some markets), and debt servicing across the board has tightened up as well.
Making money in as a real estate investor has long been based on understanding the market to secure value and then doing a solid job managing your properties. And while both of those things are still top of the list, an equally important aspect of the business is now managing debt or mortgage financing on your portfolio.
Here is a recent Globe And Mail Article that delves into rental property financing in greater detail.
The article provides a great overview of what the new world of investment property financing now looks like.
And without repeating everything that was included in the post here are some of the highlights.
First, there can be considerable variation from one lender to the next as to their lending and funding criteria for a rental mortgage application.
The primary areas of fluctuation can be found in the combination of loan to value considered, the debt servicing calculation, and the interest rate and term being offered.
Specific to the debt servicing calculation, there can not only be differences among lenders in terms of the amount of cash flow that can be used to service debt, but also the what amount of rents collected can even be used in the calculation.
Investors with existing portfolios are also being challenged to figure out how to both add to their property holdings and refinance existing debt with current or new lenders.
Refinancing in particular can lead to higher interest rates due to the change in the lending environment since the last term was put into place. Changes in your lender’s financing policies can now make a renewal more costly than what you may have been expecting.
The article goes on to mention that one of the keys to be able to properly manage existing rental property debt as well as acquire new mortgages for acquisitions is to be working with rental friendly lenders that are more focused on this space.
And its going to be a good idea to have access to a number of different bank and private lenders so that all your potential basis can be covered.
This makes working with an experienced mortgage broker almost a must due to the considerable variation among programs in the market and fact that these programs are somewhat in flux as time goes on.
If you’re looking for rental property financing for purchase or refinance, then I suggest that you give me a call so we can go through your requirements together and discuss the most relevant options available to you in the market.
Owner Occupied Mortgage
“Commercial Properties That Are
Owner Occupied Are Mostly
Financed With Business Loans”
If a property is zoned commercial, then any type of financing that takes the property as security is going to be a commercial mortgage by definition.
But compared to other forms of commercial property, the financing process for owner occupied situations tends to be a bit different.
For non owner occupied, or investment properties, financing is accessed through a commercial mortgage program where the type of property and rents are the key determining factors as to what type and amount of mortgage you can qualify for.
In situations where the property is occupied by the owner and there are no third party tenants, business financing solutions tend to be the most relevant for directly financing the property.
This is due to the fact that the business that owns the real estate may have other debts to figure into the overall debt servicing assessment, and the cash flows to service existing and proposed future debt are going to be coming from the business operations, not from individual tenants paying fixed amounts on a monthly basis.
So while the assessment of property value and liability are the same, the lender needs to focus in on the balance sheet, income statement, and cash flow of the business operations to determine if property financing can be approved.
In effect, the borrower is trying to procure a business loan that will secured by real estate security, and potentially other assets of the company.
The Use of Funds An Important Consideration to This Type Of Financing Application
For instance, if applied for capital is going to be used within the business entity for business operations or to improve the existing property, there are going to be more “A” credit options available to the borrower as compared to situations where the owners want to do an equity take out for a different venture.
The use of funds can specifically be for the property such as acquisition, building construction, and refinancing, but can also be for cash flow, transaction bridge financing, equipment acquisition, etc., provided once again that the utilization of funds is within the business to either improve overall security value and/or cash flow.
If an equity take out of some sort is required to move capital outside of the entity that owns the property, then these situations are more the domain of secondary lending sources like private lenders or sub prime institutional mortgage providers.
Financial Statement Review Determines
Acceptable Debt Level
The balance sheet of the business comes under its own unique scrutiny as business lenders are going to be interested in the total debt to equity ratio of the business before and after the completion of a new business loan against property.
For banks and institutional lenders, the debt equity ratio can range from 2:1 to 3:1 with higher debt equity ratios demonstrating higher risk and commanding higher interest rates.
When the debt to equity ratio exceeds 3:1 for the entire business, then secondary sources of funding will need to be considered at higher rates of interest.
The assessment of an owner occupied mortgage on a commercial property has similarity to a residential mortgage assessment with respect to how much of the cash flow will be required to service the total business debt.
Once again, if we consider “A” credit lenders, the debt servicing ratio can range from 1.20 to 1.5 depending on the lender, the type of property, geography, and industry.
The debt servicing ratio is calculated by dividing the projected annual debt servicing requirements by the available cash flow.
The available cash flow is determined by taking the historical operating net income and adding back non cash items or portions of non cash items depending on the particular lender.
Depending on the composition of a business balance sheet and amount of cash flow being generated, the loan to value ratio can vary dramatically from one lender to another as some programs may be able to lend more based on higher cash flow and additional security.
The business loan itself will also come with different lending covenants related to the financial statements that if not adhered to can result in account default.
The bottom line is the owner occupied commercial mortgage financing can be more complex than an investment based mortgage and can vary considerably from one application to another due to the unique financial characteristics of any one particular business.
For assistance with this type of financing, I suggest that you give me a call so we can go through your requirements in detail and discuss different commercial property financing options available to you and your business.
Subprime Commercial Mortgage Options
“Subprime Commercial Mortgage Options Are On The Rise”
While we have seen a nice recovery by the subprime residential market since the financing downturn in 2007/2008, the same cannot be said for the sub prime commercial mortgage market.
That being said, there are more and more active sources moving into this part of the market, but the movement is slow and rather cautious as individuals and merchant banks try to get a better feel as to what they are comfortable with.
To be clear, when I speak of sub prime commercial lending, this is basically commercial property financing deals that do not qualify for bank or main line institutional lending, but still have a strong enough basis to attract funding that will look at slightly higher risk levels.
While private lenders can also be thrown into the subprime space, the majority of money that is hardest to come by is for deals over $1,000,000 and over several million dollars.
Once you get into this level of commercial financing, there are not a lot of individual private lenders or lender groups that are interested in putting a large amount of their overall investment portfolio into one or two deals.
So the ongoing demand is for commercial lending that can fund the $1,000,000 to $20,000,000 deal for a one to three year period.
And while the major bank’s are getting more aggressive with their lending and funding criteria, there are still a lot of pretty good looking deals that do not make bank grade which are continually looking for money.
The this “middle” market zone, we are talking about deals for a quick purchase, mortgage refinancing, debt consolidation, equity take out, or a building/renovation project.
The goal of the borrower is to get access to capital quickly to take advantage of an opportunity, cover a capital requirement, or buy time until lower cost, long term financing can be arranged.
This area of sub prime lending is attracting more and more investors into the market where the lenders range from individuals to large financial entities that want to diversity into real estate financing.
The rates and terms can be similar to private mortgages with the biggest difference being loan size and broader acceptance of potential exit strategies.
In Canada, the Ontario market is primarily sought after due to its size and market stability. But most of the other provinces are getting interest as well for these types of opportunities.
Serious lenders can usually assess a deal in a week or so and fund within 30 days provided everything required for funding is in order.
This is always going to be more money available in the larger centers, but out lining areas are seeing more interest as well albeit with some amount of premium attached.
If you’re looking for a short term commercial mortgage or bridge loan for one or more of the reasons mentioned about, then I suggest that you give me a call at 416 464 4113 so we can go over your requirements together and discuss different subprime commercial options that may be available to you.
Business For Self Mortgage
“Getting A Handle On Business For Self Mortgages”
The self employed mortgage market or business for self as its come to be known, is a continually growing segment of the overall mortgage market as more and more people move to self employment either by choice or through force via layoffs, downsizing, etc.
In recent years, the banks and other institutional lenders made a considerable play towards securing more of this available market share with mortgage programs that could be qualified for without a great deal of proof with respect to your ability to repay.
That has changed significantly with mortgage rule changes tightening up on business for self mortgage programs causing some of the main line lenders to either significantly revamp their programs or drop them completely.
Much has been written about all this and how it is now more difficult and potentially more costly to get a self employed mortgage, especially if you are relaying heavily on a stated income approach.
While the rule changes will continue to cause some transitional problems for some, lets focus in for a minute on the essence of the rule changes.
The reasoning for tightening up mortgage requirements for the self employed was that the financing being provided at times was not always reasonable with a borrower’s ability to repay the mortgage, or it at least wasn’t very clear.
Matching borrowing risk to lending decisions is important to the borrower, the lender, and the industry as a whole.
So any changes that are made that move towards being able to more accurately assess risk is likely going to help protect this form of lending for the long term.
With stated income mortgages there is now a greater requirements to 1) prove you are making the money stated, 2) prove that a history of this type of earnings cash flow exists, and 3) prove that what you’re making now will continue into the future.
Lenders are also looking at industry statistics related to what different occupations make to better gauge what a reasonable range would like be if income cannot be fully verified.
So, yes, there is now a greater burden of proof on the self employed borrower to support their income claims. This can also be done through a variety of different ways that will depend on your specific business and the work you are preforming. For instance, active contracts and outstanding purchase orders are further support of on going cash flow. Business financial statements including accounts receivable details can further build the case.
While the lender focus is typically going to be related to the money you took out of your business, the overall business performance is still going to be important.
Bottom line is there is more work involved in getting the best rates possible for business for self mortgages and some of this additional work can translate into more record keeping and forms of disclosure that help support your application.
With some additional work to better prove your earnings, lower rates are still available which makes the process of getting the lender more comfortable with your stated numbers worth it in the long run.
If you’d like to better understand your self employed mortgage options as well as get some expert assistance in building an effective financing package, then I suggest that you give me a call so we can go over your situation together and discuss the different approaches you can take.
Private Mortgage Investment Opportunities
“Private Mortgage Investment Opportunities Available In Ontario”
We have regularly have private mortgage investment opportunities available in the province of Ontario.
As a private mortgage broker, I am constantly getting calls from both consumers and business owners to locate and secure private funds for different applications.
The amounts we place range from $30,000 to several million dollars and placements can be in first, second, or even third position.
Even though we deal with a large number of private investors and lenders, every lender has their own lending and funding requirements and every lender, for the most part, is in and out of the market in terms of having funds to deploy.
So there is always opportunity to invest.
The key is matching the funding request with the lender requirements and criteria. This is where me and my team come in.
We work hard at understanding the needs of all our lenders that wish to place their investment funds into private mortgages so that when the opportunities arise, we can quickly place the deal with the most relevant options available.
There are many investors that only focus on private second mortgages up to $100,000, others that focus on residential construction, and still others that are more interested in the larger commercial deals.
The bottom line is there is such a wide range of borrower demand its very likely we will have private mortgage investment opportunities that you may be interested in from time to time.
If you are new to private lending, this is a growing market space as banks and institutional lenders and federal regulators continue to tighten up on mortgage financing rules, pushing more and more deals, good deals, into the private lending space.
Because we work in the Ontario market where real estate is typically very strong, there is also a large interest in providing private loans due to the strength in the security.
Most mortgages that we place are for a period of one year. Terms can be longer depending on the lender or investor’s comfort in the deal and investing criteria.
Private investing is one of the easiest investment portfolios to get into due to the limited amount of knowledge required to invest and the minimal amount of regulation related to it.
If you would like to inquiry about private mortgage investment opportunities we are working on now, or in the future, then I suggest you give me a call at 416 464 4113 and we can set up a time to either speak on the phone or meet in person.
Click Here To Speak Directly To Toronto Private Mortgage Broker Joe Walsh
Private Mortgage Investor
“How To Become A Private Mortgage Investor Or Lender”
First of all, when we speak of a private mortgage investor or a private mortgage lender, in most cases they are one in the same.
The only times when you could potentially draw a separation between them is when you are referring to something like a mortgage investment corporation where the corporation looks after investor funds and places those funds into private mortgages.
In that context, the mortgage investment corporation or MIC would be the private mortgage lender and the individuals providing funds for lending would be the private investors.
In almost all other cases, the lender and investor are the same.
So regardless of how we refer to it, the question remains the same…how does one get into the business of private mortgage investing/lending?
The answer to this has a few different layers and we will now explore.
First, from a regulatory point of view, there is no securities laws or special investment governance that is required to place a private mortgage. You don’t have to take a course or become qualified in any particular manner.
Second, the level of knowledge required to start investing in private mortgages is minimal as compared to any other type of investing. This type of investment vehicle is very straight forward to understand. And while it is always a good idea to consider the counsel of experts such as lawyers, brokers, real estate agents, accountants, and so on, you certainly don’t have to when making a decision to invest or not.
Third, there is no minimum cash requirement for investing in private mortgages. You can use cash or leveraged funds if you so choose.
Requirements For Private Mortgage Investing
The only real requirements that exist to become an investor in private lending situations is to 1) have money to lend or invest; and 2) be able to access the market for potential borrowers that meet your lending/funding criteria.
Now there can be a lot more that goes into being a successful private investor as with any type of investment vehicle, there is risk involved and losses can be incurred if risk is not properly managed.
But that is really a different discussion to get into as the focus of this article is how to become a private money investor in the mortgage market.
Proven Approach For Becoming An Investor
In Private Mortgages
The most common method for investing in mortgages is through recruiting the right team of experts to support you.
The majority of private lenders work with mortgage brokers to source and administer deals, and with a lawyer to close and fund the deals as well as act on behalf of the investor if there are any legal issues that arise related to mortgages placed.
Selecting the right broker and lawyer will get you well on your way to becoming an active and successful private mortgage investor.
The key is in selecting individuals that have experience and a track record of successfully managing their client’s requirements.
If you would like to learn more about our private mortgage investing services for the private investors we work with, please give me a call and we’ll set up a time for a phone call or face to face meeting that works for both of us.
Click Here To Speak Directly With Toronto Private Mortgage Broker Joe Walsh
B20 Rate
“The Bank of Canada Bench Mark Rate Is Now In Effect For Mortgage Qualifying”
As of November 1st, 2012, the Bank of Canada 5 year bench mark rate is being used to qualify mortgage applications where the interest term is variable and/or less than 5 years in length.
For both new home purchases, and debt consolidations, and mortgage refinancings, this is having and will continue to have an impact on many Canadians looking for mortgage financing.
How The B20 Rate Is Set
Before we get into the direct impact, let’s define what the B20 rate is.
Every Wednesday the Bank of Canada sets the bench market rate which is derived from an average of the posted 5 year fixed mortgage rates of the major banks.
The newly calculated B20 rate on Wednesday is then released to the public on the following Monday, and then put into use by mortgage lenders until a new rate is calculated.
At the present time, the B20 rate is approximately 5.25% even though the actual borrowing rate to secure 5 year fixed terms right now is more than 2 percentage points less.
Impact Of B20 Going Forward.
The B of C bench mark rate now needs to be utilized when calculating an applicants ability to debt service on any variable term or any fixed term under 5 years.
Because the B20 is considerably higher than the actual rates available in the market place, many consumers are not able to meet the debt servicing requirements attached to “A” mortgage offerings or the only “A” offering they can qualify for is a 5 year rate, pushing the market place more and more towards longer term fixed rate mortgages.
Coupled with the recent changes to loan to value ratios where the maximum allowable mortgage from a federally regulated lender is 80%, the B20 rate makes qualifying for a mortgage refinance to consolidate debt much more difficult to achieve.
This will impact home purchases as well as home purchasers are more likely to adjust their sights on properties they can afford under the new rules.
With mortgage refinancing, its a bit of a different story.
In a refinance mortgage for debt consolidation scenario, the debt already exists and the mortgage holder is trying to bring down the cost of overall debt and term it out over a longer period of time. So with less refinancing options available, cash flow stress will be harder to alleviate.
For anyone looking for variable rate mortgage, the spread between the current market rates for variable and the B20 rate is about 2.5%, or almost double current variable mortgage rates which are mostly at prime minus 0.20%, or 2.80%. So to qualify for that variable rate, you have to be able to show debt servicing ability for the B20 rate which in many cases will be impossible to do.
The Long And The Short Of It
The better mortgage rates are now harder to qualify for.
On the flip side, if you can’t qualify for a specific “A” mortgage rate right now, there are several very good sub prime offerings on the market that can work in the interim.
The key right now for all mortgage holders or prospective home buyers is to really understand your financial and credit profile to see what you can qualify for, and if you can’t qualify for a mortgage with a bank or institutional lender then its going to be important to build a plan to get yourself into “Finance-able Position” to lower your rate in the near future.
The new rules are not likely going away any time soon, so there is going to be a period of adjustment.
Even if you don’t need a new mortgage today, you would still be well served to gain an understanding of the new rules and see how your current level of debt, cash flow, and credit stack up against them.
One of the best ways to do this is to work with an experienced mortgage broker who can not only help you understand the changes in the mortgage qualifying process, but also calculate the numbers for different scenarios so you have a solid plan of attack moving forward for whatever your future mortgage needs may be.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh
Stated Income Mortgage
“Stated Income Mortgage Landscape
Has Changed”
It wasn’t that long ago that a stated income mortgage was not that difficult to locate and secure, and for very good rates.
And while there still remains an ample supply for the “Business For Self” of self employed mortgages, the qualifying has become more difficult and the cost, in many cases, higher.
If we go back a few years, the self employed mortgage industry was tagged as major growth market by the primary mortgage lenders with virtually every lender coming out with their own set of programs both for verified income and stated income situations.
And for a period of time, it was almost too easy to gain access to a considerable amount of capital for mortgage financing, at excellent rates, without a whole lot of proof as to whether or not you were in a good position to pay it back.
But with the collapse of the sub prime market in the U.S. as well as Global financial problems have caused the Canadian regulators to to intervene on many mortgage rules and criteria, including stated income mortgages.
The result has seen many lenders completely abandon stated income programs and others putting more meat and qualifying requirements into the process.
This may be viewed as a case where the pendulum swung too far in favor of too easy an access to lower rate mortgages and that now we are in an environment where the market is providing mortgage services that more properly align with the related risk of a given transaction.
While this can come as a cost to many of the self employed, the changes made to date have also provided longer term stability to the overall market place and are in keeping with other mortgage changes that have been implemented to reduce overall market risk.
The good news is that supply of BFG mortgages remains solid. The bad news if you want to call it that is a larger percentage of these loans are being done in the secondary banking market where the cost of financing is going to be slightly higher.
Self employed individuals can still qualify for the lower available rates. It just won’t be as easy to qualify which has certainly put us into a period of adjustment.
What can also be confusing for business owners is figuring out which of the available stated income mortgages are best suited for them as there is quite a broad range of program offerings out there.
This is a good example of where an experienced mortgage professional can potentially add considerable value to your search for the right mortgage.
Working through all the different self employed mortgage programs is a much easier process to navigate with some expert assistance to make sure you’re not only getting the best deal available, but also that you’re setting up your mortgage financing to fit your projected cash flow now and in the future.
If you need assistance with stated income mortgage financing, I suggest that you give me a call so we can go over your requirements together and discuss the different options that are available to you.
Challenges With Commercial Property Refinance
“Just Because You Have A Commercial Mortgage In Place Doesn’t Guarantee That The Lender Will Renew Or Renew With Similar Terms”
From time to time I have written on how it can be a challenge at times to get a commercial mortgage in place for some form of incremental financing versus straight mortgage renewal.
This would primarily include real estate acquisition, but can also relate to any type of subordinate financing that would be registered against the property.
One of the basic challenges to potential borrowers is the shifting sands of borrowing landscape.
Lender portfolios are constantly changing with each and every deal that comes in and gets funded.
This requires a constant balancing act on the part of the mortgage provider to keep advanced funds and overall risk rating in balance.
The end result is that at times lenders can either be out of the market for certain types of deals, or they have more stringent criteria related to a particular type of real estate and geography combination in order to bring down their risk rating.
But these commercial mortgage supply issues are also not reserved for acquisition or new mortgage lending.
When you’re in a refinancing situation, this type of supply issue can occur as well.
If the lender is “out of the market” for a particular type of deal, there may be no renewal offered at all and the time period available to you to get the mortgage repaid can leave you scrambling.
In situations where the lending criteria has changed, you may be offered a renewal, but the rates and terms might not be acceptable or difficult to manage in your cash flow.
Let’s look at an example of this latter situation.
Say that you have a commercial property mortgage that is coming due with a maximum amortization period of 15 years.
As long as the mortgage is renewed with current market interest rates, your cash flow can still manage the repayment provided that the amortization period is not reduced.
But what if the lender has changed its lending/funding criteria on that particular type of property and shortens the amortization period to 10 years.
All of a sudden your cash flow is going to get squeezed by a higher payment which you may be challenged to cover at particular times of the year.
Planning Ahead Is Important To Minimize Surprises
The best way to make sure you don’t get a surprise at renewal time is to touch base with your lender at least two months ahead of time to make sure that 1) a renewal will be offered, and 2) the rates and terms are going to be in keeping with what you already have.
If the lender feedback is inconsistent with that you were expecting, then its time to start working on Plan B.
And Plan B can involve a few different courses of action.
On the one hand, you can work towards trying to locate another lender that can provide the rates and terms you are looking for.
But that may not materialize in the time you have to work with as there may be money supply issues related to the property type with other lenders as well.
The other course of action is to see if you make your cash flow work with the renewal being offered.
It could be your best option, so its important to determine if and how you can make it work.
Even if you determine that the renewal is unacceptable for a period of years, perhaps you can get a completely open repayment option so you have the flexibility to refinance if and when a suitable alternative can be located.
In many cases this is a good possibility due to the fact that if a lender shortens their amortization significantly on a renewal, they are basically squeezing you out anyway so they could be totally onside with a fully open repayment on the renewal.
Bottom line is not to make assumptions about a future renewal and to make sure you proactively find out what you’re likely options with the current lender will be well before the renewal date.
Because commercial financing can take a considerable amount of time to complete, if you do have a surprise you want as much lead time as possible to deal with it.