Just before Christmas I was on a refinance deal for a repeat client. Credit OK (except for capacity), low LTV, income
solid but debt load high so the debt service ratios were off the charts.
For regular readers of this blog – you know that this is not a problem. By simply switching to private funds from
institutional, debt service ratios become largely irrelevant. (As does credit, income, pretty much everything except the property itself.)
Unfortunately, however, this particular property is partially rented. Specifically, the basement is a rental apartment,
and the rest of the house is owner occupied.
Being a full or partial rental property often affects which lenders will lend, including which private lenders. As we know from previous blog posts, each lender – institutional or private – has their own “special recipe” with respect to deals they will fund. Certain locations of property, certain types of income, certain situations with respect to tax arrears, etc etc … each lender is a little different to what they like.
In this case, because the house was a part rental – my usual sources of funds would not work. The maximum the regular private funds would go was 70% loan to value, so I had to “call around” to find 75% loan to value with $275,000 of cash laying around.
What was surprising when I did this was the new “private” lenders who had come onto the scene, and the “blurred” criteria they are using to make lending decisions.
At the end of the day, everyone must decide to lend money as per the risk profile they choose – however, if you are going to be charging Private Lending RATES, one should expect to see Private Lending DEALS. You should EXPECT: Lousy Credit, Low/No/Invisible Income, Tax Arrears – Perhaps ALL of these together.
For the record, private lending is based on the property – not much else. While a credit report must be obtained, and we might ask a few questions about employment – by and large, the property value is what secures the private mortgage. Everything else is out the window.
Now if a “Private” Lender wishes that the credit also be good, and the income be verifiable, and the debt service ratios all add up … If all these conditions are there, why would I put this deal through you? If I am any good at all as a mortgage broker – if we have credit, income, debt service is good shape – I will be using an institutional lender, and
saving the client money!
Further – if a “Private” Lender wants to put all kinds of conditions on what the money will be used for – this is not “Private” Lending either. Conditions like these certainly exist in Bank & Institutional Lending – but to expect clients on Private deals to pay Private RATES and then be forced to pay out all kinds of credit cards, car loans, etc … Forget it! If it affects the property – judgement, lien, mortgage or property tax arrears – then it must be paid. But to expect a client to pay Private Lending Rates, and then also tell them what to do with the money – no.
As I have been heard to say many times before, “The client is paying for it. There will be few preliminaries. And no kiss after. Let’s go!”
If you wish to speak about a private mortgage, contact me any time. Happy New Year everyone.