Expenses Associated With Private Mortgage Lending in Alberta
There are expenses involved with the transaction of a private home equity loan. Fortunately for the lender, all the expenses associated with executing the loan are payable by the borrower. Legal fees, appraisals, and commissions are all written into the home equity loan. The investor earns interest on these fees until the loan is paid in full.
A lawyer is required to ensure the home equity loan is completed properly. Once the lender has decided on a suitable loan, the loan will be committed and instructed to a law firm. The lender will place the loan funds “in trust” (similar to an escrow) to the law firm and funds will not be released to the borrower until all necessary conditions are met. Examples of conditions are, but not limited to, confirmation of mortgage balances, satisfactory confirmation of property value, property taxes paid, valid home insurance, and identity confirmations to avoid mortgage fraud.
When executing a private home equity loan there must be sufficient investigation into the value of the property being used as collateral. This can be done by visiting the property, tax assessments, comparable sales, and appraisals. When there is a high loan to value loan being considered, or an area is unfamiliar, an appraisal is necessary. If the loan to value is low, the lender can clearly see he is in a good equity position, a formal appraisal is not required. When an appraisal on the property is required, these fees are payable by the borrower.
In private lending, the borrower pays a commission to the mortgage brokerage which comes from dispursements of the mortgage at signing. For borrowers with good credit and the ability to obtain financing through traditional lending institutions, the services of mortgage brokers are paid by the lender.