Investor Disclosure: First off there are different designations in Ontario for people licensed to deal in mortgages. There is a special document that needs to be signed by the lender for private money. It’s called Investor Disclosure. Mortgage agents are not licensed to sign this form. Mortgage brokers are licensed but the final approval comes from the principal broker. This usually means more fees for the borrower and delays in financing because they need the principal brokers approval. Its always best to deal with a principal broker when applying for private money.
Your Reason for Borrowing: One of the first questions I ask people when they apply is “what do you want the money for?”…believe it or not, this is always the Lender’s main concern as well. The ideal scenario for anyone wanting to borrow private money is that they need it very short term, a year or less, and they have a strategy to pay it back. These are a few good reasons to borrow private money: – Renovations which will increase the value of your home; – Financing your accounts receivable for your business; – Debt Consolidation to improve your credit score (this strategy is ok if you know that your selling your house but you need to improve your credit score to buy another property for cheap bank money); – Purchasing an income property that can carry the interest payment. Not a bad idea if you plan on refinancing to pay out later. – Take Out Strategy: Its always best to have a strategy to pay this loan off at maturity. And hopefully your broker will be thinking about this before they approve your deal. Private lenders want you to pay them off at maturity. A loan that matures without payout will need to be renewed. This comes with a new lender fee and broker fee. Never let a loan like this mature without renewing your contract. If you do, your in default and that can become very costly. If you can’t work with the broker who got you the deal, then try to deal direct with your lender or find a new broker to renew your contract.
The Private Lender: The best deals are one to one where you can talk to your lender, meet them and work together if a problem happens. Ultimately your lender has lent you the money strictly to make money. Its like a job, except the lenders money is working. Some people say private lenders want the property. I never met one that wanted the property. They want the interest, fees, and the capital investment at maturity. So keep your commitment to the lender, communicate effectively and plan to pay it off at maturity. Most importantly, call or email if you expect a problem so there are no surprises.