Vast majority of brokers focus primarily on the A channel finding the occasional need to venture into the
Things in that realm are rapidly changing. With increasingly stringent qualifying rules, private money can
be the difference between making or breaking a deal. Most brokers who don’t primarily focus on private
money often approach private money the same way they would an A lender. That can be a big mistake.
Here are a few tips and tricks which should help you bring your A-game when it comes to sourcing
private money for your clients.
Less is often better
One of the biggest mistakes I see brokers make is submitting (or forwarding) a package similar to that of
an A-file. You would be pleasantly surprised that most private lenders have little to no interest in seeing
NOA’s, Payslips or a letter confirming a return to work. In fact, some private lenders don’t even require a
I can’t tell you how many times I’ve learned this lesson the hard way, submitting an app, bureau and
appraisal only to find the lender declines the deal due to a 522 beacon, then on the next file approving
the deal without ever requesting or seeing a bureau.
A good rule of thumb, unless you already know your specific lender requirements is to simply start with
an email outlining the deal, what it is your client is looking for, and a request as to whether it is a good
fit for you lender.
Generally speaking, the most you will require on a private file is an app, bureau and appraisal. Unless
you already have an appraisal in hand, hold off on ordering one, because just like with A lenders, you
will likely find your lender requesting their preferred appraiser.
Of course, exceptions can sometimes be made on appraisals, if you already have one, don’t be afraid to
ask. MIC’s and other funds will generally always require the CB, but not always so for individual private
Ratios are usually not much of a factor and income is accepted as stated unless there is some good
reason to doubt client’s ability to service the mortgage payments.
Don’t be afraid to negotiate
Unlike institutional lenders, private lenders have no ‘set in stone’ fees or rates. Many times A brokers
will simply accept the first offer and if the client accepts move ahead or collapse the deal. Don’t
automictically assume rates and fees will be similar among privates, you will find they vary vastly.
The beauty of private money is there is plenty of flexibility. Don’t hesitate to negotiate the fees, rate,
and terms. Usually, the first offer will be the highest and worst. Private lenders are accustomed to
negotiation and won’t be offended if you ask. Besides, what’s the harm in asking?
Rates and fees are normally adjusted based on the security. For example a client with excellent credit
and provable income who simply does not meet the ratio requirement might receive more favorable
terms than a client with poor credit and purely stated income.
One caveat, however, is that you should know your client’s ceiling when it comes to rate and fee
upfront. This way you will be equipped to negotiate real time. Too much back and forth can sour the
deal not only your lender but your client all the same. If you can exceed your client’s expectation on rate
and fees even better.
Build up the arsenal!
Avoid simply limiting yourself to working with one or two private lenders. If you get stuck on a deal pick
up the phone and start calling around. A good source of lenders is the MIC directory.
Even if the lenders you are calling aren’t a good fit, they will provide you with invaluable information for
future deals. Ask as many questions as you possibly can, put together a list of questions before calling if
possible (not just relative do your deal).
You may learn valuable information about the lender that will be useful for future deals and your lender
matrix such as whether that lender will lend only on the higher of the purchase price or will accept the
appraised value, if they have any specific niche offerings.
Often, if a private lender cannot do your deal, simply asking that lender to suggest an alternate lender
that might be a good fit can prove invaluable. Private lenders know other private lenders, keep calling,
there is always excellent information to be had when speaking with private lenders, even if you have
used them before you may learn something new, networking is key.
When dealing with institutional lenders the requirements are pretty well uniform across the board with
some minor exceptions, in the world of private money, it is not so. Each lender is unique and has a
unique set of underwriting criteria and plenty of flexibility.
Having access to and knowledge of private offerings not only gets your deal done but sets you miles
apart from the crowd. ‘Pocket lenders’ and having access to unique product offerings will also allow you
to close on deals other brokers simply cannot.
Don’t be shy on fees!
Sourcing private money, until you have built your arsenal (and even then) can be a cumbersome task,
that doesn’t mean you shouldn’t be properly compensated for your time. As a general rule, the harder
the file, the more you should charge.
Don’t allow yourself to get trapped in the ‘100 bps’ frame of mind. If a client calls and is asking you to
source 75% on raw land in a rural community, be confident you can place the deal, but for proper
compensation. After all, you could spend a few hours on that deal and not get anywhere, hence, your
efforts should be adequately rewarded.
Be very clear and upfront about your fees, let the client know if the deal is hard to source you will want
to be paid accordingly. If a client approached me with a deal using the above example, I wouldn’t quote
anything less than 3% as a broker fee, I know a lot of calls will be in order.
On the other hand, if you have a client looking for a 50% LTV 1st on a property located in a prime urban
location, a low fee may be appropriate as it probably won’t take you that much time and effort.
Of course it is all relative to a loan amount. 100 bps on a $60,000 second shouldn’t be worth your time
(unless you are making it up on the 1st) so a minimum may be appropriate. Personally, I target a
minimum fee of $3,500. If the deal is a ‘slam dunk’ I may lower that to $2,500.
Either way set your targets, be confident and never sell yourself short.
Know what matters!
Generally speaking, only three things really matter to a private lender.
1) The property – location, value (LTV) and size of existing mortgage (if any) the lender is going
2) Payments – how will the client make the payments. Doesn’t have to be comprehensive, simply a
common sense explanation as for how the client will afford the payments.
3) Exit strategy – How will the client repay the loan. Private money is a ‘band-aid’ solution, it is
usually never mean to be a long-term solution so exit strategy is key. Your lender will need to
know how your client(s) will exit.
Credit, ratios, use of funds and other factors certainly can impact your deal, however, none are as
material as the three above.
Alex Khalil, Mortgage Broker,
Dominion Lending Centre
If you enjoyed this post you will love his Blog – www.alexkhalil.com/blog
Alex Khalil is a private lender of 15+ years and broker whose primary focus is private money.