What is an alternative / non-traditional lender?
The term “alternative mortgage lender” refers to a variety of different financial institutions that offer loans to homebuyers. The Big 5 banks provide the bulk of the mortgages in Canada. These large banks provide customers with access to some of the industry’s most competitive mortgage products, but they are extremely selective in the borrowers they choose to work with since they are subject to stringent government oversight and regulation.
On the other hand, alternative lenders have more freedom when it comes to the terms they offer. They also often have different criteria for approving mortgages.
Some examples of non-traditional lenders are:
- community banks
- credit unions
- B-lenders
- private mortgage lenders, etc.
Although each sort of lender in the Canadian mortgage market functions a little bit differently, they all offer mortgage lending in some capacity. On the other hand, alternative lenders’ requirements for approving mortgages are more lenient. Even if you’ve been turned down for a loan from one of the larger banks, alternative lenders offer another route to homeownership as long as you can make your monthly payments.
Alternative mortgage lenders can provide you with mortgage options not offered by conventional banks, such as a speedier mortgage application procedure, special lending terms, or the ability to submit your mortgage application online.
Who is an alternative / non-traditional lender for?
- Creditworthy borrowers who fall short of the strict requirements set by the big banks. This may be the result of heavy debt, a modest income, a bad credit score, or other factors.
- Those with inconsistent or alternative sources of income, such as rental income or self-employment revenue.
- Also, if your financial situation has changed since the beginning of your term and you are now at risk of not being able to renew. You might wish to think about renewing or refinancing with another lender in this situation.
How does an alternative / non-traditional lender work?
To a borrower, though, the difference may not seem like much of a deal, particularly if it helps them on their path to home ownership.
Even though alternative mortgage lenders aren’t big banks, this doesn’t make them any less of a legitimate source of financing. Each year, thousands of Canadians obtain mortgages from the most well-known alternative lenders, all of which are well-known and respected businesses. More Canadians are turning to alternative mortgage lenders to finance their home purchases as it gets more challenging to be approved by a major lender.
What are the advantages?
- Simple, streamlined application process
Borrowers can expect a reasonably rapid and streamlined application process.
- Customers unable to secure a mortgage from a traditional bank may be able to get one from a “B lender,” as this type of loan is designed to accommodate borrowers with:
- less-than-perfect credit histories
- low incomes
- large amounts of debt
- missed mortgage payments
- foreclosures
- bankruptcies
- consumer proposals
- and other unusual situations
- B lender mortgages have more flexible qualification requirements and are more accepting of less-than-perfect credit, non-conforming sources of income (such as business-for-self, commission, bonus, part-time, or contract employees), differing down payment sources, and debt servicing ratios. They also have a better way to qualify rental property income.
- With an alternative lender, your chances of success are higher if you’ve had trouble getting funding from conventional financial institutions.
What do I need to get started?
Together, we can look at your profile and help you navigate the options that are in your best interest.
If alternative mortgage funding is the best option for you, we’ll leverage our understanding of their products, as well as our relationships with them in an effort to find you the best terms and rates.
We’ll also set the foundation for an exit plan so you can work towards moving your mortgage to a traditional lender in the future.
Depending on your needs, it may very well make sense to partner with an alternative lender to secure a mortgage.
Have questions? Ready to apply for your mortgage?
What are the disadvantages?
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- Alternative lenders may charge higher interest rates and closing costs than traditional banks.
The trade-off might be justified given the circumstances.
- Some alternative lenders may cease operations.
There is always the risk that the alternative lender you’ve chosen to work with will go out of business because of how new they are to the market. If you’re considering working with an alternative lender, it’s important to do your due diligence just as you would with any other company.
Investigate the following, for example:
- Do they have at least a few years of business experience?
- Do they have sufficient funding?
- Are they supported by an established financial institution or a reliable source of funds?
- If you have any questions, can you reach a dependable support staff member?
- Do they have a lot of positive customers reviews?
- There may be no discount for early loan repayment.
Whatever lender you choose to work with, be sure to ask about any repayment penalties or additional costs.
- Certain alternative could tack on extra fees.
Read the small print and ask questions before to signing any contracts. There are numerous expenses that certain lenders may tack on to a loan, including disbursement fees, origination fees, repayment fees, and more.
- A ‘B lender mortgage’ usually requires a property appraisal for all mortgages (buy or refinance), whereas A lender mortgages do not (or do not do so 50-60% of the time).
We wouldn’t necessarily call this a con, but it does make closing more expensive.
- Some borrowers may find it challenging to come up with the minimum 20% down payment required by ‘B lender mortgages. Depending on your financial situation, a larger down payment might be required.
