Interest in private lenders has never been greater, but brokers beware, your due diligence starts with understanding your lender and their commitment level.
As a broker, you may know quite a number of the private lenders, or you may be new or unfamiliar with this part of the business, the lender participants, and the peculiarities they often bring in their commitments. Regardless of your exposure, it is an almost impossible task to know all the participants and their lending criteria.
How, as a broker, do you make the distinction between honest lenders and their less scrupulous counterparts, how to ensure you are working in your client’s best interest?
1. A well-known lender is not necessarily the best lender for your deal. Lenders that spend a great deal of time and money on promotion will have to cover those expenses somehow. They may be the most honest lender around, but they may also be more expensive than the competition.
2. Many lenders have very specific policies about collecting fees upfront. These are usually for very legitimate reasons; generally to cover possible legal expenses or other out-of-pocket expenses. You will have to read the lender’s terms and compare them to other commitments to determine the competitiveness of the offer for your client (are these fees normal in this market?) Be aware that fees are regulated quite differently from province to province.
3. Get a written commitment before you present the lender offer to your client. Then, if there is a misunderstanding later, you at least have the commitment to refer back to.
4. If the terms of the commitments you receive appear to be too onerous for your client, or you feel they are too restrictive, be upfront about this with your client. Make sure you point out both the positive and negative items on a commitment. Ultimately, your client has to decide if they are comfortable with the terms being offered.
5. The more thorough you are in presenting your file, the less likely there will be misunderstandings with the lender later in the process. Always speak to the deficiencies in your file. Ask your client the tough questions and get straight answers. Back up whatever you can with documentation. Only then will you be able to present your file with confidence. With full disclosure upfront, there should be little reason for the lender to want to back away from their commitment.
6. The appraisal can make or break your deal. Bear in mind that the biggest cause for concern usually comes from the appraisal, so until that is completed and reviewed, you can never be too comfortable with a commitment or allow your client to get too comfortable.
7. Be conservative with your property valuation – manage your client’s expectations. The lender will appreciate it, and chances are your deal won’t have to be revisited (or collapse) when the appraisal is completed. Again, it’s one less item for the lender to address negatively.
8. In order to look after your client, you need options for them to consider. You may know a lender that will look after your particular client, but other lenders may have different or better offers for your client. I don’t specifically refer to rates and fees, but more the overall package that the lender offers. As with “A” lending, the lowest rate isn’t always the best deal for your client.
9. Once you have options for your client, you should check out the lender who appears to be the best fit. If you don’t know the lender already, you can talk to colleagues or even call the local regulator to see if there have been complaints against the lender in question.
10. Bottom Line – If you have concerns about the lender or the offer from the lender, make sure you address those concerns with your client. Your client may be under considerable financial duress and may need you to be the strong voice of reason at a time when their need for money blinds them to matters that should concern them.
Hopefully these steps will guide you and your client to a successfully funded mortgage with a reputable lender. Do keep in mind that the majority of private lenders are very reputable individuals and companies!
The private lending market is very active, even more so now that conventional lenders are working to tighter underwriting standards, and the market is much larger than most brokers realize. There are often lending options out there for even the toughest of files.
This is a slightly amended version of an article written by MIC veteran Al Kelly. It has been shortened to make it suitable for web publishing.
How, as a broker, do you make the distinction between honest lenders and their less scrupulous counterparts, how to ensure you are working in your client’s best interest?
1. A well-known lender is not necessarily the best lender for your deal. Lenders that spend a great deal of time and money on promotion will have to cover those expenses somehow. They may be the most honest lender around, but they may also be more expensive than the competition.
2. Many lenders have very specific policies about collecting fees upfront. These are usually for very legitimate reasons; generally to cover possible legal expenses or other out-of-pocket expenses. You will have to read the lender’s terms and compare them to other commitments to determine the competitiveness of the offer for your client (are these fees normal in this market?) Be aware that fees are regulated quite differently from province to province.
3. Get a written commitment before you present the lender offer to your client. Then, if there is a misunderstanding later, you at least have the commitment to refer back to.
4. If the terms of the commitments you receive appear to be too onerous for your client, or you feel they are too restrictive, be upfront about this with your client. Make sure you point out both the positive and negative items on a commitment. Ultimately, your client has to decide if they are comfortable with the terms being offered.
5. The more thorough you are in presenting your file, the less likely there will be misunderstandings with the lender later in the process. Always speak to the deficiencies in your file. Ask your client the tough questions and get straight answers. Back up whatever you can with documentation. Only then will you be able to present your file with confidence. With full disclosure upfront, there should be little reason for the lender to want to back away from their commitment.
6. The appraisal can make or break your deal. Bear in mind that the biggest cause for concern usually comes from the appraisal, so until that is completed and reviewed, you can never be too comfortable with a commitment or allow your client to get too comfortable.
7. Be conservative with your property valuation – manage your client’s expectations. The lender will appreciate it, and chances are your deal won’t have to be revisited (or collapse) when the appraisal is completed. Again, it’s one less item for the lender to address negatively.
8. In order to look after your client, you need options for them to consider. You may know a lender that will look after your particular client, but other lenders may have different or better offers for your client. I don’t specifically refer to rates and fees, but more the overall package that the lender offers. As with “A” lending, the lowest rate isn’t always the best deal for your client.
9. Once you have options for your client, you should check out the lender who appears to be the best fit. If you don’t know the lender already, you can talk to colleagues or even call the local regulator to see if there have been complaints against the lender in question.
10. Bottom Line – If you have concerns about the lender or the offer from the lender, make sure you address those concerns with your client. Your client may be under considerable financial duress and may need you to be the strong voice of reason at a time when their need for money blinds them to matters that should concern them.
Hopefully these steps will guide you and your client to a successfully funded mortgage with a reputable lender. Do keep in mind that the majority of private lenders are very reputable individuals and companies!
The private lending market is very active, even more so now that conventional lenders are working to tighter underwriting standards, and the market is much larger than most brokers realize. There are often lending options out there for even the toughest of files.
This is a slightly amended version of an article written by MIC veteran Al Kelly. It has been shortened to make it suitable for web publishing.
