In our last blog, we looked at A lenders. What happens for those that don’t meet the stricter guidelines of a traditional A lender or are maybe looking for more flexibility? Did you know that B lenders have been increasing in popularity over the last two decades with the top four companies accounting for 12% of Canada’s mortgage market share(versus only 2% in 2001)?
B lending, or alternative lending, is a different avenue for borrowing the necessary funds required for a home purchase. Lenders in this space specialize in more unique situations and don’t meet the guidelines of A lenders. For example, people who are self-employed, have bruised or no credit, and have unique incomes (e.g. gig economy, sole proprietors, service industry with tips, etc.) are better suited to a reputable B lender.
Alternative lenders are still regulated and the A versus B lender distinction is less to do with the quality of the mortgage and the financial profile of the customer. One advantage of alternative lenders is that they typically don’t offer mortgage terms that are more than 3 years. Unlike the banks, their primary focus is helping customers correct their borrowing history in 1-3 years before they move back into more mainstream lending. As such, you can typically expect an interest rate that’s 0.5% to 1% higher than the current market rates as well as a typical 1% lending fee.
Myth: If you can’t qualify with an A lender, then you qualify with a B or alternative lender.
Fact: Unfortunately, that’s just not the case. Alternative lenders also have criteria and rules they have to abide by when selecting borrowers. For example, they require a minimum down payment or equity of 20%, have more stringent geographical restrictions, and have lending limits on the amount of mortgage they will actually offer.
Let’s say you’ve bought a house, sold your previous one, and therefore have a great down payment. You should be totally in the clear with your current bank right? Not necessarily! If you’ve started a new business as so many have over the past couple of years, you might not have the two-year income history needed to satisfy your bank.
Regardless of already having had a mortgage with them, the banks and other A lenders stick to strict guidelines in terms of income qualification. In a case like this where you have more than a 20% down payment and have at least a year’s worth of business bank statements, then we have trusted alternative lenders that will consider this in lieu of personal salaried income.
Remember that alternative lenders specialize in these types of situations!
There are lots of lending options out there. Contact the Kyle Miller Mortgage Agent team so we can discuss your situation and provide the best solution for you!
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