Getting a mortgage from a bank or a non-bank lender has become a bit more challenging. With the recent introduction of new mortgage rules, lenders have had to tighten their qualifying guidelines. The new mortgage rules have also impacted those who want to refinance their mortgage loan. And at renewal time, if you want to increase your existing loan, change your amortization or shop for a better rate, the new qualifying rules may have an impact as well.
However, banks or a non-bank mortgage lenders are not the only options for a mortgage. In addition to some credit unions that have not changed all their lending guidelines, there is now a growing group of alternative or private lenders who are flexible and open to reviewing a variety of situations. While many home buyers and property investors consider private lenders a last resort, the new mortgage rules have created an opportunity for a variety of specialized lenders to enter the market.
Private lending is excellent for:
- Fix and flips
- Draw mortgages – willing to provide draws based on need vs. completing a clearly defined milestone (i.e.: lock-up, ready to paint, etc.)
- Solving CRA back-tax issues
- Improving cash flow and helping get debt paid down faster; even if the interest rate itself is comparable
- Investors holding larger portfolios of property
Many private lenders put more weight on the equity in a property, rather than on the work you do or on the credit challenges you may have. However, the downside can be higher interest rates and lending fees.
Smaller institutional lenders, however, are offering specialized lending with affordable interest rates, reasonable lending fees and flexible underwriting.
A few benefits of specialized lending:
- Quick closings: The key to a quick close is having your financing set up quickly — specialized lending can make that happen.
- Terms of the loan: These loans are for short periods of time, usually no more than one to three years, which gives you time to get into a position to qualify with a conforming lender.
- Great for investors: Because specialized lenders have flexibility, they will look at those fixer-upper rental properties with a keen eye and may fund both the purchase and the home improvements. Also, there is more flexibility with regard to the number of properties allowed in an investment portfolio.
- Diverse repayment options: This is especially helpful for entrepreneurs. Payments can be structured more creatively and may include interest-only payments, prepaid interest, and balloon payments at the end of the term or on closing of a sale.
- Construction financing: Bank construction financing can be riddled with red tape. Private lending may get the borrower more money, and quicker access to construction draws, which in the end, could save time and money when building a home.
While qualifying has become more challenging, there are still options. If you are renewing or want to refinance, or if you want to talk about the qualifying guidelines and how they affect you, contact our team today!