If you have been declined by your bank and also by an Alt-A Bank or a “B” Bank, then your best option is to get a private mortgage.
What is a private mortgage?
A private mortgage is a mortgage provided either by a Mortgage Investment Corporation (MIC) in Canada or by a private individual investor.
Banks do not care much for the equity you have or the assets you have. They mostly do not even accept non-traditional sources of income. Banks like salaried people. They go just by your credit and your salary. Banks have pretty stringent debt ratios and credit score rules.
Even the Alt-A Banks are not very liberal with their qualifying criteria. The only thing they offer is that they accept higher debt ratios to around 48% which is not much. For self-employed, they will accept the last six months of bank statements in place of Tax Returns or T1 Generals. But they will accept a low credit score.
Private money mortgages come to the rescue. The fact is that private mortgages keep the economy going and keep real estate value stable. Without the availability of private mortgages, many borrowers will go into foreclosure.
If you are going for a private mortgage, then here are a few things to keep in mind.
First thing is to tell your private mortgage broker that you prefer to get the mortgage from a MIC. The reason for that is that MIC’s offer lower mortgage rates and fees. Their terms are also a whole lot better. For renewals with MIC’s, you do not have to go through the lawyer again and renewals are easy and inexpensive.
Another reason is that most MIC’s will not pay-off another MIC or a private individual. So, if this is your first time borrowing a private mortgage, try to go with a MIC. If you go with a private individual investor, you will be stuck taking a private mortgage from private individuals in the future.
By Jeet Singh
Jeet Singh is a writer and CEO of Benevolent Bancorp.