Why don’t the banks just lend against Barrie investment real estate?

When you are looking for Barrie real estate for investment purposes, and you are having trouble borrowing money from the bank or other financial institutions, you may have to consider other options. For some, these options might include not getting their ideal house or investment property. For others, they may contact a private lender. Should the lender feel interested and believe that the venture is relatively safe, they may lend you the money. Why might the bank not lend you money, even if the investment is sound? Well it comes down to two main factors; INvesting in Real Estate

1. Traditional high street banks count ‘doors’. A door is literally how many units plus how many single family homes do you own, so if you owned a single family home that you didn’t occupy yourself and a 4 plex multi residential building that counts as a total of 5 doors (a 4 plex counts as 4 doors + the single family home). Most banks have a limit on how many doors they will lend you personally and that number can range between 5-10 for most of the major lenders. Irrespective of your own personal credit, hit the magical number of 10 and you may run into a road block. It’s possible that by gong to the commercial side of the bank that you may be able to work out some deal but if that fails then read on!

 2. If you are purchasing the home in your own name the bank will allow a certain amount of the income generated from the investment towards your income increasing your debt ratios and therefore allowing you to borrow more. However, the bank doesn’t usually allow more than 50%-70% of the income generated so sooner or later the ratios fail and you are stuck.

There is of course your personal credit, if that isn’t up there, the chances of doing very much in the way of investment real estate is going to be limited.

Barrie real estate So are there alternatives to investment real estate borrowing?

Borrowing Money Privately – Documents Needed To Close A Barrie Real Estate Deal

Promissory note

A promissory note is one of the papers that you will need to sign in order to obtain a private loan. It is the agreement that has been reached by both parties and is considered a legal obligation once signed. The note contains important details about the transaction for both parties. You will have to pay back the amount loaned and interest in the time stipulated on the note.

Private Mortgage

This is another document included that ensures that you live up to the agreement and meet the required deadlines. The word ‘Mortgage’ comes from the Spanish word of ‘Death’ hence ‘Mort’ literally means , ‘until death’. You are borrowing the funds until you repay them or until you die, whichever comes first. This is known as the mortgage and usually lists the Barrie real estate you are purchasing as security in the event you fail to make your payments. Your estate is responsible for repaying the debt in the event you die.

A few things to consider including in the note if you are buying a house through a private lender are:

A substitution of collateral clause

The substitution of collateral clause means that should you wish to sell the property before the note has been paid off, you may substitute another property or asset of equal value. This means that if you are unhappy with your purchase, and wish to get rid of the investment or dwelling, you will be able to under the substitution of collateral clause. This is, providing you have the collateral.Barrie real estate

 

Prepayment Clause

The prepayment clause is something that is very important in terms of paying off your loan and saving money. Over years of paying the money back to your private lender, the interest will amount to thousands of dollars. Having the prepayment clause included means that you can pay the note off before full maturity of the loan and save a lot of money in interest charges.

Insurance

You should include both the buyer and seller when you are looking for insurance on your Barrie real estate property. The policies should be separate with an owner’s title policy and a lender’s title policy.

Disclosure Statement

Another thing that you should include in the agreement is a disclosure statement. This statement basically informs your lender of your exact intentions for the property.

Seek Legal advice !

As with all legal documents, understand them before you sign them. Obtain legal advice before you sign anything. ‘Second mortgages’ and or ‘private mortgages’ typically come with higher interest rates then normal. A ‘First’ will typically cost between 7-10% and a ‘Second’ mortgage around 12-17%. You should understand what you are signing BEFORE you sign it.

When you are looking for an investment Barrie real estate property, but are unable to obtain a loan from a financial institution, you may want to consider going through a private lender. The promissory note, mortgage, insurance and the note’s contents and clauses are what protect you and the lender from being cheated out of money and keeps everything legal and binding. However, we aware that it also protects the Lender so ensure you know what you are signing.

The Hocking Homes team does work with many investors in the Barrie real estate market and we have access to the right mortgage brokers who have access to private money. If you are in any doubt give us a call.

Ian Hocking

The Hocking Homes Team at Royal LePage First Contact Realty, Brokerage.

705 252 7939

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