Equity Lending is a type of mortgage financing for situations that traditional lenders avoid. Equity lending is made possible by a large down payment or equity-typically in the 35% range. These lenders are typically private (not regulated by banking laws) who are comfortable with challenging or riskier scenarios. However, they usually require a higher rate and a fee.
These mortgages can be just like regular mortgages (5 year terms, principle + interest payments, limited prepayment privileges) or quite unique (interest only payments, 1 – 2 year terms, fully open).
Here are some examples where equity lending can be applied:
- Insufficient Income: clients who don’t have enough income can get approved on an equity deal with a large down payment.
- Unconfirmed Income: clients with unconfirmed income often look to equity mortgages. This can include self-employed people, contractors, or clients with foreign income.
- Poor Credit or Previously Bankrupt: clients who don’t fit the major banks’ credit requirements often look to equity lending. Once their credit improves, they can move the mortgage to a traditional lender.
- Problems With The Property: a strong client can be declined by the major banks if the property is deemed to be unsuitable. Property issues include former grow-ops, houses in poor condition, houses in small towns or rural areas, old houses in commercially zoned areas, and very small houses.
- Construction Mortgages: clients who are building a house can obtain a construction equity mortgage if they have a large down payment and a reputable builder. Payments are usually deferred until the project is complete.
- Too Many Properties: Major banks will not lend to clients with too many properties (the threshold varies but is often about 5), even if the properties are not mortgaged. An equity or private lender will not be deterred by this.
- Clients in Foreclosure or With Tax Arrears: Major banks will typically decline clients who are in financial distress. Equity lenders will be happy to assist if there is enough equity is in the deal.