Private mortgages are not hard to qualify for, because lenders are more focused on making money in form of interest from the money they give. But even with that said, private money lenders (depending on the company or individual you are dealing with) have their minimum requirements that borrowers need to meet, to approve a loan request.
They call that standardized loan qualification, but again that varies with who you are dealing with. Generally, an established private mortgage lender in Canada would want to see the following during prequalification:
A CV Confirming Experience and Prior Projects
This applies to fix-and-flippers or property brokers who want to buy, repair and resell the house for higher profits. So in this case, the borrower needs to prove to the lender that they have been in the game and have managed to successfully handle similar projects in the past. The lender may also need to see contractor bids to confirm you are going after the property you’ve applied funding for.
Equity on Your Property
You can use the built equity on your property as collateral for a private mortgage. However, the equity amount as at now needs to be 35% of the property’s value for it to be considered. Nonetheless, other lenders may be a bit lenient to reduce the equity to 20%.
Credit Score of 550+
In most cases, the credit score or financial history of the borrower is not a key element to qualify for hard loans. But lately, lending companies are starting to set a minimum credit score requirement, (off cause lower than what is required by banks) just to reduce the scope of risk.
The Renovation Scope of Work in Writing
Ordinary homeowners may want a private mortgage to rehabilitate their property, so as to sell it off at a better price. Now, when applying for the private loan, the lender might want to ensure the scope of work to be involved in the renovation will end as soon as possible, just to ensure the property gets sold before the agreed repayment period. As in, if the agreement is that you pay back the money plus interest within six months, then the renovation work should end soonest possible to pave way for selling of the property.
Location and Purchase Price of the Property
House location is key in determining the property’s value. So to confirm whether your application amount is worth, your lender might want to visit the property and even confirm its expected purchase price from the selling party. In a case they find you overpriced the house loan, your request might be denied. But you can always change the figures to suit the accurate estimate if you want to still engage the same lender.
But generally, most hard money lenders will only need the title of the property as collateral and for you to agree with their terms of repayment before giving you the loan.