Designing a Mortgage That's Right For You!
Understanding the difference between private mortgages and traditional bank mortgages can help you make the best decision for financing a new home. Each option provides the money to secure real estate, however, they are structured and processed very differently. In general, private lenders are more flexible and responsive, although they may charge a higher interest rate for the loan. This guide provides the necessary information to help you make the right decision on which mortgage type to choose.
Banks take money from depositors and give them a low-interest rate. They turn a tidy profit by lending the money to borrowers at higher rates. Federally chartered banks can also borrow money from the government at lower interest rates, then lend it out at higher rates to make an even greater profit.
Private lenders typically manage funds from investors, banks or both. They lend the money out to individuals or businesses who need it. Investors who give money to private lenders expect to make a decent return on their investment. Therefore, private lenders may charge slightly higher rates than banks. On the other hand, it's often easier to get a loan from a private lender, which may have lower criteria than banks and other financial institutions.
Many borrowers find banks harder to deal with than private lenders. Because they are subject to federal and provincial/state regulations, banks have more rules and requirements. Mortgage Brokers who deal with banks must be familiar with numerous programs that can vary depending on location. In turn, each of these programs has its own rules about who it can lend to and the criteria needed to qualify for its mortgage programs.
Alternatively, while private lenders also have to conform to federal and provincial/state laws, they are more flexible and offer more options to home buyers. As a result, private lenders may approve more loans than traditional banks do. Further, private Mortgage Brokers can customize the criteria used to approve your mortgage loan. These criteria include debt to income, loan to value ratio and credit scores.
Banks often rely on computers to make decisions based on your financial history and income sources. They don't handle unusual circumstances very well. For instance, self-employed borrowers often have a hard time qualifying for bank loans because they don't have wage and tax statements from traditional employers. Private lenders often dig deeper when investigating who should qualify for a loan and are more likely to overlook certain flaws following a valid explanation.
Private lending benefits home buyers in the following situations:
More lenient guidelines and restrictions are just one reason borrowers choose private mortgages. Other reasons include:
A private Mortgage Broker provides financing from investors or other unconventional funding sources. This makes private mortgages attractive for those who don't do well when seeking traditional bank loans. While it's important to consider the pros and cons of each type of mortgage, private mortgages offer far more flexibility for borrowers who want to negotiate their terms without strict rules and regulations to be concerned with.
For more information contact us, the Mortgage Designers, Your Victoria BC Mortgage Brokers of Choice today!