Types Of Financing Available For Home Buyers In Alberta
Purchasing a home is the largest financial decision you will make in your lifetime. Many variables can affect your buying power. For instance, what is your income? What is your credit score? Do you have a sizable down payment? What is your debt-to-income ratio? What are your assets and liabilities? The list is quite extensive. Whatever your situation, there are options available to explore.
Lender financing is provided by financial institutions. If your financial health is in a favorable state, a big bank will often lend you the money. Historically, big banks have been the go to for mortgages and lending in Canada. For instance, you may already have an everyday banking account with a large financial institution. This can impact they’re lending power with you. In addition, banks will consider their current relationship with you, your credit history, etc. However, a drawback is that they can only access their own rates and products. This can limit your rate exposure.
If you are comfortable with negotiating, banks can give discounts on their posted rates. Further, financial intuitions can offer discounts if you consolidate your services with other providers to them. For example, you have a vehicle loan with ABC Corporation. In return, you decide to meet with ABC Corporation to discuss getting a mortgage. However, you use ZYX Corporation to provide everyday banking services. If you were to consolidate all services into ABC Corporation, they may offer you a discounted rate. If lender financing isn’t a viable option, investigate vendor financing.
Vendor financing can come from a few different sources. For example, there are private lenders and mortgage brokers. In addition, vendor financing can also be a loan from your parents or friends.
Private Lenders include individuals, syndicate, or a mortgage investment corporation. Oftentimes, private lenders take into consideration the property’s value and marketability. In contrast to solely looking at your credit history. Unfortunately, a drawback to using a private lender is they tend to have higher interest rates in comparison to a financial institution. Further, private lenders have broker fees and set-up costs that can amount to 1-3% of your total mortgage. One positive is that private lenders have a faster approval period.
Some Examples In Which You Would Require A Private Lender Are:
- A bank will not finance the property
- Your credit history is poor
- Non-confirmable income eg. self-employed income that isn’t steady
- You only require a short-term loan
- You need fast financing and cannot wait for a long approval process
Mortgage brokers are becoming more popular as a financing option for home buyers as the real estate market heats up. A mortgage broker is third-party lender that has access to financial institutions and lenders rates. They look at getting you the lowest possible interest rate as they can acquire a high volumes of mortgage products from multiple lenders. Essentially, a mortgage broker or lending center is used to help facilitate funds.
Bridge financing for home buyers is a short-term loan that enables you to use equity in your current home to secure a down payment in a new home. The loan is used to “bridge” the gap between the time you purchase your new property and your current home sells. Borrowers must pay off the loan between 30 days up to 6 months. In addition, bridge loans offer peace of mind and flexibility as they buy you more time.
However, some disadvantages to bridge loans are their higher interest rates and the risk can be higher. There is potential to be stuck paying two mortgages if the sale fails to close.
Further, your lender requires certain documents to qualify for a bridge loan. They need a copy of the sale agreement for the home you are selling, and the purchase agreement for the new home you’re buying. This type of financing is usually only available to individuals that are currently homeowners.
Help With Your Real Estate Transaction
If you are thinking of buying a home, you should hire credible professionals to give you peace of mind. Knowing the home buyer real estate law basics help. Our experienced real estate lawyers at Kahane Law Office are happy to assist you with your real estate transaction. You can reach us toll-free at 1-877-225-8817, or call us directly at 403-225-8810, or email us directly here.