Toronto is a diverse city and a great place to live for its nearly 3 million residents. Not only is Toronto the capital of Ontario, but it is also Canada’s largest city and the cultural, arts, and sports epicenter of the country. Located on beautiful Lake Ontario, Toronto continues to top many world city index ratings for quality of life and is also routinely rated as one of the world’s most livable cities.
When it comes to prime real estate, few areas in the country can outperform the Toronto and GTA area. This past year has surpassed all expectations. Real estate experts had predicted a potential double-digit decrease in property values due to the economic impacts of a prolonged pandemic. This did not happen.
Instead of losing value during this last year, properties in Toronto and the GTA increased into the double-digit territory with record home sales compared to this time in 2020. Recently released real estate figures reported by the Toronto Real Estate Board (TREB) indicate that in March of this year, sales were up by 97% compared to sales during March 2020 with over 15, 00 units sold compared to just over 6 thousand in March 2020. The average house price has risen from $902, 787 to over a million (1,097,565) according to (TREB).
Lending Options in Toronto
For a Toronto homeowner or a borrower wanting to purchase property, statistics like these are enticing. Many are looking to finance home purchases. Existing homeowners are also looking at the option of taking out home equity for different second mortgage types. In the Toronto area, there exist different lending options that go beyond the banks.
- A Lenders– Banks are representative of A lenders. The Banks tend to lend out predominately long-term amortized mortgage options and demand very strict criteria to obtain mortgage financing. These lenders routinely put borrowers through mortgage stress tests that require exemplary credit, substantial and easily proven yearly-based salary. A lenders may not be an option for those with less-than-perfect credit scores or different types of work such as contracts or those that are self-employed.
- B Lenders– B lenders are represented by credit unions and trust companies. These lenders may be a little more lenient than their bank counterparts, however strong credit is still required ( usually credit scores need to be at least 550) and these lenders are still looking for substantial household income to secure mortgage financing.
- C Lenders– There are mortgage brokers available that specialize in private mortgage lending options as well as individual and groups of private lenders. Private mortgage loans can be an option for a borrower/homeowner that may have damaged credit or may require short-term and quickly negotiated mortgage financing. C lenders will assess other criteria and will be able to overlook credit issues.
Types of Private Mortgage Loans- What Do Private Lenders Require for Private Mortgage Financing?
Toronto borrowers will be looking for different mortgage financing than Toronto homeowners. If a Toronto borrower wants to purchase real estate and has poor credit or hard-to-calculate monthly income, the banks and credit unions may turn down mortgage financing.
Private lenders will look at other criteria depending on your mortgage needs. For a first-time homebuyer, sufficient down payment will be needed and listing all sources of monthly income which can include contract and freelance income, investment income, and child/spousal support monthly income.
If a Toronto homeowner is seeking private mortgage financing in the form of a second mortgage a private lender will be focusing primarily on the degree of equity that exists in the property as well as the appraised value of the property. Regardless of the type of second mortgage request, a private lender will be assessing what is referred to as the Loan-To-Value (LTV). An LTV of 75% is the standard when negotiating second mortgage loans (representing lending 75% of the appraised value of the home).
Interest rates associated with private mortgage loans tend to be between 7% and 12%. Although higher than the banks can provide, private lenders will focus on different criteria and be able to loan despite damaged credit. All associated lending fees will range between 3% to 6% of the total cost of the loan. Depending on the needs of the borrower/homeowner, private mortgage options can include:
- Home equity loans
- Home Equity Lines of Credit (HELOC)
- Home Renovation Loans
- Bridge financing
- Debt consolidation loans
- Renegotiated terms on a principal ( 1st mortgage)
What You Can Do to Prepare for a Private Mortgage Loan
Credit issues will not be a barrier to obtaining private mortgage financing. It is, however, always advisable to be prepared before meeting with a private lender. Gathering all relevant paperwork and researching the market is all part of doing your homework. It is also a good idea to take a few steps if possible, to be in the best position you can before borrowing.
- Pull a recent credit report from one of the two major credit reporting agencies in Canada, Equifax or Transunion. Study it carefully and look at the areas that need improving
- Always pay your credit cards on time and in full if possible
- Pay down debt as best you can
- Have a recent appraisal of your property
- Increase monthly income if necessary
- Save for a larger down payment
Mortgage Broker Store Can Point You in the Right Direction
At Mortgage Broker Store, we have access to a broad network of experienced and well-established private lenders in the Toronto area. We will be able to sit down with you and advise you as to the best loan option depending on your unique financial needs.
Whether you are looking to use equity to buy a second property or take out a debt consolidation loan to help streamline multiple debt payments, the Mortgage Broker Store will be able to advise as to the best route open to you. Don’t let credit issues stand in the way of taking advantage of a robust Toronto real estate market.