Category Archives for Private Mortgage Lender
Private Mortgage Lenders Require Realistic Exit Strategies
“If You Want To Acquire A Private Mortgage For Real Estate Property, Make Sure You Can Offer The Lender a Viable Exit Strategy”
One of the current challenges for private mortgage lenders is their assessment of a viable exit strategy for any mortgage funds they extend.
Because the mortgage term is typically only one year, they need to have some degree of confidence that the property will have a near term resale market if in the event that the loan cannot be repaid on time.
And while private lenders are more than prepared to take back a property to cover off their outstanding mortgage advance, it still doesn’t do them any good if the property can’t be sold in some sort of reasonable time period. The alternative then is to hold on to the property until it will sell which can be highly profitable in certain cases due to property appreciation, but it also reduces the amount of capital they have available to provide new loans, which goes against the business objectives of most private lenders for most properties.
And in 2010, there are lots of private mortgages coming due where the borrower can’t get refinancing because the institutional lending market is so tight, and the resale market for related real estate still has not picked up to provide a near term liquidation option.
Therefore, one of the keys to being able to secure a private mortgage at the present time is providing the lender multiple potential exit strategies to consider besides the worst case scenario of taking the property back and liquidating it.
While most borrowers do not want to have to end up selling the property to pay back the private or turn title over to the lender in settlement of the debt, they also don’t provide a very convincing case as to how they plan to repay the lender in a years time.
The more planned out and feasible the exit strategy or strategies, the more likely you will get serious interest from private mortgage lenders in just about any geography and property type.
If you’re looking at private mortgage financing as an option for a residential or commercial property, I recommend that you give me a call so that we can first review the potential exit strategy and then find viable private mortgage options for you to consider.
Ontario Private Mortgage Lending Market
“Ontario Provides A Diverse And Deep Private Mortgage Lending Pool For Residential and Commercial Applications”
One of the definite advantages of living in Ontario, especially the southwestern part of the province, is the mortgage options afforded to businesses and individuals by private mortgage lenders.
While many consider private mortgages are hard money or lenders of last resort, they do serve a definite purpose that probably should be considered more often than it is.
For instance, institutional lenders will charge very similar rates for less optimal mortgage opportunities, but also provide a more rigorous, time consuming, and costly application process.
And while most private lenders will only supply one year interest terms, there are those that will go as high as 5 years and will even consider an amortized payment where the principal balance can be paid down versus paying interest only for the entire term.
At the same time, many individuals want the one year interest term and the interest only payments as they are trying to put bridge financing in place for a transaction or financing requirement that is short term in nature. Private mortgages can be ideal for these types of situations as the time line meets the needs of both parties.
Private lenders, on average, will consider higher risk situations than traditional mortgage lenders, but that has changed somewhat as well. There are still privates that will finance property because they are comfortable with taking possession or even ownership if the borrower does not meet all their commitments. But more and more, there is a growing group of private lenders who are more focused on situations where its less likely that they will have to take back the property and there is a solid plan to repay the mortgage at the end of any mortgage term that gets proposed.
The other great advantage of living in Ontario, especially the GTA, is that virtually every area has private lender representation for both residential and commercial mortgage requirements. There is also a broad cross section of targeted private lenders that will do large volumes of certain financing applications only. The benefit of the niche lender is that they can quickly assess any opportunity that meets their criteria and they are more inclined to consider higher risk scenarios due to their more in depth knowledge of the local market and target application.
If you are trying to locate and secure private mortgage financing for a residential or commercial application in Ontario, I suggest that you give me a call so I can quickly assess your situation and provide relevant options for your consideration.
Private Lenders Have Become More Selective
Many Private Mortgage Lenders Have Changed Their Approaches To Approving Loan Requests
Some are calling the current recession an extended Christmas season for private mortgage lenders.
With most institutional lenders either being very conservative with their new funding commitments, or not lending at all, the private mortgage lending space has gotten a large increase in higher quality applications over what they would typically see.
As a result, they too have become more selective focusing on the lower risk, higher return opportunities.
Private lenders are largely divided into two camps.
The first camp is demanding higher levels of due diligence and are more focused on deals that have a higher probability of being repaid at the end of the one or two year mortgage terms that are typically issued by lenders.
This group of privates will ask to see financial statements, credit bureaus, customer contracts, personal net worth statements, and much of the same type of application info requested by a bank.
Of course there is absolutely nothing wrong with this approach, but it does demonstrate that private mortgages are more likely to be issued to businesses and individuals who have a higher probability of servicing the debt and making timely repayment than those who have a history of poor credit management or have no strong prospects for repaying the debt when it comes due.
The other group of private mortgage lenders can be categorized more at the opposite end of the spectrum whereby they are less interested in the back story and the financial profile of the borrower and more interested in the long term value of the property offered as security.
In the current recession, there are are some highly depressed properties that will generate considerable returns when things turn around. For private lenders that are prepared to be patient, financing these types of properties in the near term can become highly profitable in the event of foreclosure.
Either way, private mortgage financing become harder to come by because there is more demand than supply.
If you need a private mortgage for a residential or commercial property, I suggest you give me a call so that I can quickly assess your situation and provide relevant mortgage financing options for your consideration.
Private Mortgages Can Save Your Business
“If Your Business Owns Commercial Property And Requires Additional Capital For Operations or Lender Refinancing, Our Private Mortgage Financing Solutions May Be
You’re Best Option Right Now”
As we slowly start coming out of the recession in 2010, more and more businesses are trying to either find working capital to help keep the business going, or they’re trying to find a way to payout their bank.
When business down turns occur, cash flow can become strained and bank covenants can get breached.
Weaker financial statements will not likely allow you to get more financing from your bank and if you’re off side with your banking covenants causing your loans to be called, it may be very difficult to quickly move to a similar banking relationship.
When the business owns real estate, the alternative form of financing in many cases is funding via private mortgages.
Private mortgage lenders are less sensitive to bumps in the road and are more concerned with the underlying asset value, marketability, and the future prospects of the business.
The move to private mortgage financing is temporary in nature to allow the business to rebound back to its normal level of operating profitability at which time it will be able to return to a conventional banking situation that offers lower rates.
In many cases, its unfortunate that your bank will not work with you through what in many cases is a short term decline in business. Refinancing is always time consuming and can be fairly expensive, eating into equity you’ve built up over the years.
But refinancing via private mortgages also provides an option, many times the best option, to quickly inject cash into the business and/or payout a lender who is threatening to take legal action against you.
And if you wait too long trying to find a cheaper solution through another institutional lender, you could see the business deteriorate even further and risk greater losses or even business failure.
The obvious benefits of private mortgages are that they can be much faster to secure than conventional commercial mortgages and because the debt servicing requirements are interest only, the higher cost of financing may not result in higher monthly debt servicing payments. In addition, many private mortgages on commercial property are open after three or four months, so if you are able to get the business back on track quickly and locate a more favorable long term financing source, you can payout the private lender without any prepayment penalties after the initial months have passed.
If you’re like many business owners currently facing a cash flow crunch or lender repayment demand, give me a call so that I can quickly assess your situation and provide private mortgage options for your consideration.
Private Mortgage Loans Can Save Your Business Cash Flow
Do You Need a Private Mortgage For a Commercial or Residential Property?
For businesses struggling to maintain positive cash flow through the back stretch of the current recession, private mortgage loans can be the best short term financing solution.
If you’re a business owner, you may have found the current recession to be very challenging in 2009. Many Canadian businesses have experienced a drop off in sales and a strain on capital resources as they try to manage through the recessionary slow down effects.
For well established businesses with long term banking relationships, they may find themselves now offside with lending covenants, overdrawn on working capital credit facilities, and getting pressure from the bank for repayment of arrears or even a demand to be paid out.
Yes, despite sometimes having a 10 plus year relationship with a commercial lender, one bad year, especially in a recession, will cause the lender to end the relationship.
With the business feeling there are better days ahead, refinancing is required, or at least additional financing to inject cash flow into the operations. But because of the most recently completed year being sub par, and credit perhaps getting strained, an institutional financing option is not likely going to be available and if it is, it will be hard to find.
When the business owns commercial and/or residential use real estate, the solution more often than not is private mortgage loans.
And while a private lender may look at a lot of the same financial information that an institutional lender does, they tend to be able to look past the obvious bumps in the road and become more focused on the future ability of the business to repay borrowed funds.
From a cash flow point of view, private mortgages are typically interest only, so even at a higher rate of interest, cash flow required for repayment can be quite similar to a conventional bank mortgage due to the fact that no principal is being repaid.
The business will secure private funds for one to two years, allow operations to get back on track, then return to the banks for cheaper money.
This may seem like an unnecessary and costly step for a well established business that’s gone through a tough stretch. The hard reality is that this scenario is playing out almost daily in the early days of 2010 as businesses try to get back on track from a tough 2009.
Private Mortgage Lenders end up being the white knight in many of these situations allowing the business to continue on without disruption.
If you have a business in a similar situation, please give me a call so we can go over your situation together and discuss what mortgage options may work the best for your needs.
Private Construction Financing
The private construction financing market continues to develop due to the benefits provided to both sides of the equation, namely the borrower and lender.
Private construction funding has become the construction mortgage product of choice for many buyers, home owners, and builders in the province of Ontario as well as other parts of Canada.
For private lenders, construction financing is an effective way to get their money placed into the market several times in one year, yielding a very solid level of return.
This is an example of a product that fits certain needs of the market while still charging a premium price.
Private mortgage financing of any type is not cheap compared to institutional lender rates for similar applications. But one of the key differences with construction financing as compared to other forms of private mortgage lending is that the borrower in many cases will choose a private mortgage over an institutional mortgage offering.
Private construction loans on average, can be put into place faster, provide higher capital leverage, and offer more straightforward and predictable draw schedules that their institutional counterparts.
All things being equal, everyone that could qualify for traditional bank money at the lowest possible rates will take it every time… or at least they would in theory.
The challenges of bank based construction financing become the opportunity for the private lender. Borrowers have to understand that the lowest interest rates are provided at the lowest levels of risk. To determine if an application fits into a low risk category of lending, more assessment work is required by the lender which typically takes more time. With most financing applications for just about any purpose, time is a factor in getting funds approved and in place. So when time is a constraint, private money can become the solution.
The second challenge provided by lower cost money is the amount of funds the borrower needs to have invested or have available to invest in the construction project. If a private mortgage solution will provide higher leverage than the next best institutional offer, then private money can again end up being the solution.
The third challenge related to low risk construction lending is the care and conservatism associated with construction draw advances. If you’re a first time applicant, this is likely not a concern to you as you have no historical experience to go by. But for a builder who is continually utilizing construction financing, the predictability of a private lender’s draw administration process may cause you to chose private construction financing, even if it requires you to pay a premium.
If you’re seeking private construction financing in Ontario, I suggest that you give me a call so that I can quickly assess your requirements and provide you with relevant options for your project.
Click Here To Speak With Construction Mortgage Broker Joe Walsh
Private Mortgage Lenders And Rates Are Very Regional
In recent years, private mortgage lenders have grown in numbers as baby boomers seek out different, more secure investing opportunities outside of the stock market roller coaster of the last ten years.
Regardless of where you live in Canada, there are likely private mortgage lenders not too far away that could be interested in your property if private funding is required.
However, unlike institutional lenders that tend to be more consistent in terms of interest rates right across the country, private mortgage funding and rates can vary tremendously from region to region. There can even be different regions within a province where rates and available funds can vary considerably.
Like most free markets, private mortgage funding is based on supply and demand where lenders will charge what the market can bear in relation to the competition.
Private mortgage sources are mostly regional lenders because they understand the real estate market in their own back yard and are more comfortable assessing mortgage opportunities in areas they are most familiar with.
So if any particular area has a limited number of private lenders, it stands to reason that the interest rates quoted are likely going to be more on the high side due to a lack of competition.
On the flip side, in areas where the real estate market is strong and there are a larger number of private lenders present in the market, rates on average are going to be on the lower end of the spectrum.
But there are all sorts of variations around these two extremes and somethings what is available can be very different from what you might expect in any given area.
For instance, in the Ontario’s GTA, private mortgage rates can range from 8% to 12% on residential and commercial first mortgages, depending on the level of confidence the private lender has in the local market where the property is located.
Within the stronger real estate markets in Montreal, private mortgages can start as high as 15% regardless of what may be considered a lower risk scenario.
Loan to value ratios will also vary from region to region, again reflecting the strength of the local real estate market as well as level of competition.
If you’re actively seeking private mortgage financing, you’d do well to contact a mortgage broker that works with private lenders in your area so you can not only develop a better understanding of potential leverage and pricing in your market, but also access their sources as private lenders are not always easy to locate without the assistance of a mortgage broker.
Private Mortgage Lending Criteria
Private mortgage lenders will qualify and approve applications for financing slightly different from a traditional institutional lender.
First of all, someone seeking a private mortgage for either residential or commercial purposes has likely been unsuccessful securing mortgage financing with an institutional lender. While a private lender’s application process will be much more streamlined than a traditional mortgage lender, they still are going to want to know what the money will be used for and the circumstances that lead to the need for financing.
Few lenders, including privates, are interested in high maintenance borrowers, so the back ground story of the applicant will be brought into consideration.
Second, the resale potential of the property as well as the property value are equally important to a private lender. If there is good equity available to secure a private mortgage, but the resale market in the area is thin and hard to predict in terms of timing and net realizable value after sale, then a private lending source may still pass on the deal.
Third, while an individual credit score or credit profile is not always scrutinized or even looked at by privates, there are a number of private lenders who will take a look at your credit background to determine if you’re someone perhaps struggling with their cash flow, or someone who habitually doesn’t pay their bills and is constantly in arrears.
Once again, private lenders are looking for borrowers whose intention is to pay their bills on time and honor the conditions of the mortgage. Even applications with strong property values may still have a hard time securing private financing if there are indications that the potential borrower may not have the best intentions towards managing his or her financial commitments.
That being said, there are private lenders that will still finance people with really bad credit histories provided that the property values and the resale market supports the lending decision. These mortgages will also be granted at higher rates with higher closing fees, and any failure to make payments will be dealt with swiftly to the full legal rights of the mortgage provider.
Private lenders typically will also want to inspect the property themselves and may also conduct their own appraisal of market value.
Most private lenders work through mortgage brokers to access the market with each lender typically being very regional in terms of properties they will consider financing. Part of the reason for a small nearby market area is the development of first hand knowledge of the market and property values.
If you are trying to locate or secure a private mortgage, I recommend that you give me a call so I quickly assess your options and go over them with you to determine the best course of action.
Private Mortgages Are Also Bridge Loans
Most private mortgages are bridge loans by definition in that they are for a short period of time, typically only for one year in duration, and have a finite end point.
While both consumers and business owners may use a private mortgage as a primary source of financing if they have bad credit and/or can’t provide proof of repayment, the best potential use of private mortgages is to complete a real estate transaction within a short period of time. Once ownership is achieved, the borrower will be able to take more time to secure longer term financing options that can retire the private loan.
One of the key characteristics of private mortgages is the speed in which one can be put into place. In some cases, private lenders can get a mortgage in place in a matter of days, especially if there is a financial incentive for them to accelerate the process.
To provide a comparison, a traditional mortgage will typically take 10 business days to close once a mortgage commitment has been issued and signed back. With a private mortgage, if the deal is straight forward and easy to verify, some private lenders can get everything done and funds issued in less than a week.
Because private lending sources are typically individuals working through their own business lawyer, and focused on placing their own money, both decisions and administration related to mortgage registration and disbursement can get completed much faster than an institutional mortgage lender.
Even though the cost of speed can be significant, if the deal you’re trying to close is highly profitably or has the potential to generate significant returns over time, then paying a high placement cost may end up being trivial in the big scheme of things. Too often individuals are unsuccessful closing deals within tight time requirements because they are overly concerned with the short term cost of money versus the overall amount of money they may lose or miss out on earning if the deal falls through due to a lack of available funds.
And even if you have lined up a cheaper source of capital that will satisfy your requirements into the long term, if there are any delays in securing the funds, you could still run out of time and lose out on your deal.
In many ways, private mortgage loans can be the ideal bridge loan for many potential deals. The key decision is whether to use private funds as an initial financing choice to get the deal closed, versus a contingency plan that you will call on to rescue a deal if traditional sources of financing are slow to emerge or get closed.
If you have a deal that requires a private mortgage, I recommend that you give me a call so that I can quickly provide available options for you to consider.