In Canada, about 72% of all outstanding residential mortgages are handled by six of the country’s biggest banks: RBC, Scotiabank, TD, BMO, National Bank, and CIBC.
Just because these banks are big doesn’t mean you get automatic approval. You can still be turned down for a loan because you don’t fit into their box. You need to understand that there are many levels of lenders out there.
Alternative mortgage lenders are the next best place to look. They offer more flexibility in terms of mortgage eligibility and a simpler approval process.
With so many people turning to alternative mortgage lenders, it’s important to understand what they have to offer. In this article, we’ll be exploring everything you need to know about alternative mortgage lenders.
What Are Alternative Mortgage Lenders?
In simple terms, alternative mortgage lenders, otherwise known as a B lender or sub-prime B lender, are non-bank organizations that offer mortgage financing.
They often provide mortgage options that aren’t available in a traditional bank. These options include unique loan terms, a much faster mortgage application process, or the ability to apply for a mortgage online.
In many cases, those with credit issues or employment history that don’t fit traditional banks often turn to alternative mortgage lenders. These lenders are usually the best solution for these individuals because they understand your situation.
Difference Between Alternative and Regular Mortgage Lenders
You might be asking: what are the differences between alternative and standard mortgage lenders or banks?
The biggest difference is the criteria by which they look at clients. Regular lenders, which are usually big banks, look for clients with good credit scores and verified income.
Alternative mortgage lenders, on the other hand, are much laxer in that department. They focus more on how much equity you have. Alternative lenders underwrite their proposals based on factors other than just credit score and income.
Why Are Alternative Mortgage Lenders Becoming Popular?
In Canada, alternative mortgage lenders aren’t governed the same way as normal banks. This is why they’re able to make certain exceptions.
Some new federal mortgage laws in Canada forced traditional banks to cut back the size of mortgage loans. This limits the percentage a client can refinance their home to, putting extra pressure on certain clients.
Alternative lenders are becoming an important player in the ability to refinancing homes. While their rates might be a bit higher than normal banks, the flexible option maybe most important
Why Should You Consider Using Alternative Mortgage Lenders?
With all that in mind, you might still be on the fence about reaching out to an alternative mortgage lender in Canada. In this section, we’re going to outline some of the most popular reasons people use alternative lenders to help you decide if it’s right for you.
As the name suggests, your credit score shows how well you manage your credit. It shows how long you’ve had credit if you’ve ever missed any payments, your current balance and if you’ve had defaults or been referred to a collection agency.
Banks and other institutions use your credit score as a primary factor for whether or not they lend you money. If you have a nonexistent or poor credit score, this hurts your chances of securing a mortgage.
Alternative mortgage lenders, or bad credit mortgage lenders as they’re sometimes called, are far more lenient. They don’t just use your credit score to assess your eligibility.
So the interest rate seems to be top of mind for most. Getting a mortgage approval with bad credit can be difficult, but it also affects the interest rate that you’re eligible for. You must keep this in mind when applying.
The Canada Mortgage and Housing Corporation require a credit score of at least 680 to be insured. If you don’t have insured mortgages, your rate is typically higher.
Alternative mortgage lenders reduce that risk and help you find a more suitable interest rate with greater flexibility.
Traditional banks often require you to show two years of tax returns or financial statements to prove your income. Self-employed workers might have a lot of trouble with this, especially if they have less than two years worth of work.
Workers that rely on commission pay, like retail and sales jobs, might have an even tougher time. Because their income fluctuates, banks may be hesitant to give them a loan.
Alternative mortgage lenders look a little deeper into your income situation and are more lenient with who they give mortgage loans to.
What Types of Loans Do Alternative Mortgage Lenders Offer?
In terms of the types of loans, alternative mortgage lenders usually offer the same packages as traditional banks. Examples of loans that alternative lenders in Ontario and other Canadian Provinces offer include:
- Home equity loans
- 1st mortgages
- Home Equity Lines of Credit
- 2nd mortgages
- Mortgage refinance and debt consolidation
As is the case with alternative lenders, they also offer other products that traditional banks don’t. These products are more flexible, and examples include:
- Mortgages for poor or bad credit owners
- Interest-only mortgages
- Stated income mortgages
- Property tax mortgages
- 100% rental offset mortgages
- CRA Debt Consolidation mortgages
What Are the Benefits of Working With Alternative Mortgage Lenders?
At the end of the day, what are you going to get out of alternative mortgage lenders? Let’s take a look at a few of the benefits here.
Because alternative lenders use different criteria to look at your creditworthiness, so the process for approval is just simpler. It’s not as rigid as regular banks, which is a plus for self-employed workers and entrepreneurs.
Better Loan Terms
Traditional banks might have relatively inflexible rules and terms, meaning some people aren’t going to get decent loan terms no matter what. Alternative lenders offer lower interest rates and better loan terms for their clients.
Traditional banks usually have more bureaucracy and red tape that halts the mortgage approval process. Alternative lenders typically have quicker approval processes, meaning you can refinance your home faster.
Major banks tend to complicate the process of applying for a mortgage. Alternative mortgage lenders are generally more flexible when applying for a mortgage. They usually offer more funding options. This means clients can explore different financial avenues for mortgage payments.
Leverage Alternative Mortgage Lenders Today
A mortgage isn’t a “one size fits all” process.
Accredited alternative lenders help you find refinancing strategies catered to your needs. Use this article to figure out whether alternative mortgage lenders are right for you.
For more information on mortgage lenders in Canada, check out the rest of our blog! If you’re looking for reliable mortgage solutions in your area, contact us today!