Thursday, September 26, 2013

Private Mortgages - When/From Who/Negotiating Terms

Private mortgage lenders can be companies or individuals who provide necessary financing when normal institutional options are not available. They hold security on the property, as would a typical bank type mortgage, as an asset backed loan.  They can prove to be an excellent alternative to conventional financing in many circumstances.

Examples of where taking mortgages out from private sources can be a preferred option:
·        Buying a specialty property (ie.gas station), that banks will not consider
·        Buying a property with physical impairments (ie.environmental issues)
·        Loan to value considerations (needing 80% vs. institutional @ 65%)
·        Poor  credit rating or previous bankruptcy
·        Needing a short term (stop gap) loan for a short period of time (ie. 1 yr.)
·        Small business owner with unverifiable income
·        Needing quick financing approval in order to firm up a sale
·        Seller financing often can include more favourable terms given the
their motivation in selling the property

Private mortgages are best sourced through Mortgage Brokers (MB), who would have a list of companies or individuals who wish to invest their cash into private mortgages. The mortgage brokerage industry has grown exponentially in the last 20 years in Canada, so there are a plenty of MB’s to consider. The key is to ensure they are qualified to deliver a private lender, who can meet your objectives and timelines.

Things to look for include:
·        Will a detailed Letter of Commitment be provided
·        What other costs and fees are involved
·        Time to process the approval
·        Can you meet the private lender to review your situation
·        Costs to Payout Early (prior to expiry of the term)

Keep in mind that if your intentions and commitment are sound and your mortgage ends up being paid as agreed – it proves to be a good investment for the lender.  The key then is to take this position upfront, in order to help you negotiate the most favourable terms. As with everything in real estate – ‘you don’t get what you get what you negotiate’. Even when dealing in the private mortgage market, don’t sell yourself short! 

As always, enlist the assistance of an experienced commercial realtor in locating the best private financing sources available in your area.

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