According to recent mortgage statistics, more and more homebuyers are turning to private mortgage lenders. One of the biggest reasons for this is that the mortgage financial stress test that was introduced at the beginning of this year is making it more difficult for people to qualify for mortgages on the homes that they want. Other reasons for turning to private mortgages include being new to the country and not being able to prove income or wanting to purchase a unique type of property such as a tiny home that the bank won’t finance.
If you are the parent of a young person just starting out and trying to buy their first home, you may have witnessed their frustration first hand when despite having a good job and decent credit, the banks are turning them down for a mortgage. Maybe you’ve even thought to yourself, if the bank won’t lend them money, maybe I could just do it myself.
If this sounds like you, you might be in a position to become a private mortgage lender. But before you decide whether to take this path, there are a few things you should consider.
- You should collect interest. Even if you are lending a private mortgage as a personal favour to a family member, you should charge interest in order to avoid headaches come tax time. Also, you should consider the mortgage an investment and expect to make a return.
- You’ll need a legal contract. The terms of a private mortgage should be drawn up by a lawyer. The contract should outline things like interest rates, when payments are due, as well as penalties for late or missed payments.
- Consider the risks. If a bank has turned someone down for a mortgage, you should carefully consider the reason for this before putting up your own money. While private mortgages don’t necessarily mean high risk, the fact is that some are riskier than others. And if you are lending to a friend or family member, you’ll want to consider how doing so might affect your relationship.
If after considering all these factors, you still feel that becoming a private mortgage lender is the right decision, your next step should be to contact your mortgage broker. At Akal Mortgages, we can help walk you through the process and answer any additional questions you may have. For more information, give us a call today.
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