How We Used a Private Second Mortgage for a Purchase Plus Improvement

January 14, 2018

Private second mortgages can be very useful to unlock potential. The ingredients to a successful transaction include need, equity and a solid exit strategy. Sounds simple but knowing how to put the pieces together at a reasonable rate takes some know how.
I recently helped a client bridge a financing gap on a new purchase to give him liquidity to do some important home improvements. The private second mortgage we provided made a big difference to the outcome of the purchase because it allowed our borrower to work with the limited liquidity he had to close on the purchase and have enough left in his pocket to renovate the home for personal use.

THE SITUATION

James was going through a separation and needed a fresh start on his own. His income was very strong but there were some late payments showing on his credit bureau which lowered his score below 600. With credit scores below 600 we couldn’t get financing from an A-type lender and had to work in the B market.
After the sale of his ex-matrimonial home James had enough money to payoff all of his debts and keep $100,000 for down payment, closing costs and renos.
James found the perfect home in Oshawa for $385,000 which needed some updating but was the ideal size in the right neighbourhood.
We were successful in arranging the following 1st mortgage for James:
$385,000       purchase price
($96,250)      25% down payment
$288,750       1st mortgage representing 75% of the purchase price
 
However James had budgeted ~$22,000 of his cash for reno costs to update the home and was counting on buying with a 20% down payment and 80% financing.

THE SOLUTION

Private second mortgage lenders will push to a maximum loan to value of 80%. So I was able to get a private 2nd home equity lender to provide financing of ~$22,000 to bridge the gap between the 75%LTV first and the 80% threshold.
Best of all I was able to get the 2nd mortgage lender to agree to match the 1st mortgage interest rate with a 1% lender fee keeping the payments affordable for James.
James was then able to close on the purchase and leave some money aside to install a new kitchen and do some esthetic work to his new home.

EXIT STRATEGY

With 12 months of perfect credit history James will have a vastly improved credit score over 600. He will also be creating sweat equity in his new home by improving the kitchen and updating the curb appeal.
With an increased home value and improved credit profile it will be easy to consolidate James’ 1st & 2nd mortgages into a new first mortgage with a type-A lender.
Through case studies like this one I use real life examples from my everyday business to show how I use private home equity mortgage financing help Canadians in need. The names and exact circumstances have been altered to protect my client’s identity but the results, solutions and success is real.
Looking for private home equity financing to make a purchase or improvements to your home? I can help you the same way I helped James. Please fill out the contact form below and I’ll follow up with you right away to schedule a phone call.

Profile

Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.