More so than prime or conventional lenders, private lenders have tighter guidelines on other factors to compensate for the added risk.
PROPERTY TYPE AND VALUE: This is arguably the most important factor in being approved by a private lender. The mortgaged property must be in good condition and will have to undergo a strict appraisal before you are approved. If you have a poor credit score, you are considered a riskier client and lenders need to ensure that their investment is secure, in case you default on your mortgage.
INCOME: Your income can fall into one of two categories: confirmable and non-confirmable income. Confirmable income is preferred by lenders, and is proven through Notice of Assessments (NOAs).Non-confirmable income, common among self-employed or commission based employees, forces lenders to use an estimate of your income based on the average income typical of your employment.
DOWN PAYMENT (IF PURCHASING): With a private mortgage lender, the minimum loan-to-value ratio on the property is 85%. That is, you need to put in a down payment of at least 15% to be approved. If you can afford to put in a higher down payment, then it is advisable to do so. A larger down payment means you have more funds invested in the property and that you have more at stake. Lenders also take this as a sign that you can keep track of your personal finances.
EQUITY (IF REFINANCING): If you are refinancing, private lenders may allow you to go up to a maximum of 85% in loan-to-value. For example, if your property is value at $400K, you can refinance up to $340K. Many private lenders prefer a maximum LTV of 75%, especially in British Columbia. With respect to a minimum equity stake in your property, there is none.