Daniel and Rebecca, a couple from Kelowna, British Columbia, are looking to purchase a 10-acre rural property with a small off-grid home and a separate guest cabin. The property is listed for $800,000 and includes a mix of woodland and farmland, making it an ideal space for their goal of running a small-scale organic farm and short-term rental business.
However, when they applied for a mortgage, multiple banks declined their application for the following reasons:
- Non-Traditional Property Type: The property does not fit traditional lending criteria, as it includes farmland, outbuildings, and an off-grid home.
- No Municipal Services: The home runs on solar power and a well, making it ineligible for standard bank financing.
- Zoning Restrictions: The property has mixed residential and agricultural zoning, which some lenders avoid.
- Self-Employed Income: Rebecca works as a freelance graphic designer, and Daniel plans to run the farm business, making their income difficult to verify.
How a Private Mortgage Helped
Since traditional banks would not finance the purchase, their mortgage broker arranged a private mortgage based on the property’s value and their available down payment.
✅ Loan Approved: A private lender approved a $600,000 mortgage (75% Loan-to-Value) based on the property’s value rather than its zoning classification.
✅ Flexible Qualification: The lender focused on their down payment and business plan, rather than rejecting the deal due to non-municipal services.
✅ Fast Approval: The private mortgage was approved in 10 days, allowing them to secure the property before another buyer stepped in.
✅ Interest-Only Payments: They were given a 12-month, interest-only loan at 9.5%, reducing their initial costs.
✅ Business Expansion Funds: The lender also included an extra $50,000 to help them make initial farm upgrades.
The Exit Strategy
Since private mortgages are short-term solutions, Daniel and Rebecca planned a clear exit strategy to transition to a lower-cost loan:
- Generating Business Revenue: Within 12 months, their farm operation and short-term rental began generating consistent income, making them more attractive to alternative lenders.
- Applying for an Alternative (B-Lender) Mortgage: After 1 year, they refinanced with a B-lender at 6.25%, reducing their interest rate.
- Increasing Reported Income: By filing higher business income on their tax returns, they positioned themselves for a bank mortgage in the next 2 years.
- Transitioning to a Prime Lender: After another 2 years, they qualified for a traditional mortgage at 4.3% interest, securing long-term affordability.
Final Outcome
- Without a private mortgage, Daniel and Rebecca would have lost the opportunity to buy their dream rural property.
- With a private mortgage, they secured financing, launched their farm business, and eventually transitioned to traditional financing.
- Their property appreciated to $900,000, giving them additional equity to invest in their business.
Key Takeaways
- Private mortgages help buyers purchase unique, non-traditional properties that banks won’t finance.
- Lenders focus on property value and down payment rather than strict qualification rules.
- Having an exit strategy (increasing income and refinancing) is essential to moving into more affordable financing.
Summary
Daniel and Rebecca, a couple from Kelowna, struggled to secure a mortgage for a 10-acre rural property with an off-grid home and mixed zoning, as traditional lenders deemed it non-qualifying. A private lender approved a $600,000 mortgage at 9.5% interest, focusing on the property’s value rather than zoning restrictions or municipal services. This financing allowed them to purchase the land, launch their organic farm and short-term rental business, and invest in upgrades. Within a year, they refinanced with a B-lender at 6.25%, and after two more years of reporting higher business income, they transitioned to a prime lender at 4.3%. This case highlights how private mortgages enable buyers to acquire unique properties while providing a bridge to traditional financing.
