Private lending is an excellent alternative to conventional loans if you're looking for financing that you can get quickly and through a streamlined process. Alternative lenders are companies and individuals that are regulated differently than credit unions, banks and trust companies.
Whereas traditional mortgages and loans focus on credit scores, private lenders look to the equity you built up and a formula called the Loan-to-Value (LTV) ratio. Finding a reputable private lender to get the best loan based on the market value of your property is the end goal.
Understanding what to avoid by way of scams and fraud can help you get a private loan when you have over 25% Home equity.
Recognizing Red Flags and Common Scams in Ontario’s Private Lending.
Private lenders can cater to clients looking for an alternative source for various reasons like unexpected expenses due to costly renovations or natural disasters. These factors, among several others, make finding a credible private lender essential.
Knowing the red flags to watch out for, plus common scams, is a good starting point. Here are a few things that you'll need to consider.
Guaranteed Approvals
Guaranteed approvals top the list because they can signal predatory lending practices. While private lenders focus on equity rather than other metrics like credit scores, they have a process and requirements. Guaranteeing approvals regardless of financial standing and credit history points to a scam. Private lenders have a more streamlined process but still require you to have over 25% of the equity in your property to start.
Up Front Fee Collections
Watch out for scammers who ask you to pay upfront costs before they tell you how the loan will be processed. Remember that Ontario's Financial Services Regulatory Authority is an authority that protects consumers. Following this link, you can check if an agent or broker is licensed.
There are also some things you should watch out for digitally.
- A business that doesn't list a physical address on its website can be suspect. If you check the address on Google Maps and there's only a PO box, that's another red flag. Look for a phone number on a website.
- If you're facing a foreclosure or power of sale, private lenders can help you, but you must be especially careful when selecting one. Scam websites won't have a padlock icon on the web address. Look at the URL to ensure it has “https.”
The content on a website makes a difference, too. Be wary if it contains many spelling and grammatical errors.
Legal Resources and Reporting Channels in Ontario.
Even if you're paying attention to the red flags, it's possible you can become a victim of a dishonest private broker or agent. However, consumers have a few avenues they can pursue, including:
The Financial Services Regulatory Authority of Ontario (FSRA)
This regulatory body enforces The Loan and Trust Corporations Act, which regulates the structure and framework for Trust and Loan companies operating in Ontario. The FSRA has a tab where you can file a complaint against an individual or company. You can also bring systemic issues in the lending industry to their attention.
Ontario Ministry of Government and Consumer Services
This ministry offers consumers a variety of resources so they understand their responsibilities and rights when dealing with financial services and loans. They offer a Consumer Beware list that you can access here.
The Role of Due Diligence in Avoiding Fraudulent Lenders.
Borrowers have a responsibility to detect fraudulent lenders before they sign on. First and foremost, it's essential to verify any lender's credibility.
- If a private lender has been around for quite some time, it's easy to find information about them on review websites and directories.
- Offers that appear to be too good to be true generally are. For example, a private lender might advertise that you can get some money without undergoing any kind of credit check. It's also important to remember that the number of credit checks that you go through can affect your score. Even though that's only sometimes a big concern for a private lender, a credible company will inform you.
- The origin of any email offer can also make a difference. If you receive one from a personal account through Hotmail or Gmail, you'll need to be wary it's a scam. Credible lenders have corporate and/or business domains and email addresses.
The Law Society of Ontario has some other boxes it checks to ensure that loan transactions are honest. The society suggests that lawyers examine all identifications for any irregularities and gather photocopies. They also indicate that lawyers looking at any loan application use outside sources like employer references and credit reporting agencies to verify the information.
Are You Looking for A Reputable Private Lender?
Mortgage Broker Store focuses on private mortgage-related products, including second mortgages. Mortgage applications that don’t meet traditional lending requirements are a specialty. Our team of private lenders, brokers, and licensed mortgage agents is ready to help. Let us help you get a mortgage loan that fits your requirements today.
Email [email protected] or call 416-499-2122.