When conventional lenders, such as banks and credit unions, decline mortgage financing, it can be disheartening. However, there are alternative options worth considering!

If you’re seeking a mortgage, but your credit score has suffered, and major institutions won’t lend you money, you may find yourself in the “Alternative A” or “B” lending space. Similar to A-lenders (big banks, credit unions, etc.), various companies operate as B-lenders. Alternative lenders cater to individuals with weaker credit histories or unstable income, like recent immigrants and the self-employed. Consequently, these lenders often have lower entry qualifications, though they may offer higher interest rates and fees.

Why is alternative lending necessary?

  • Addressing CRA arrears
  • Handling income issues, like those faced by self-employed borrowers
  • Dealing with credit issues such as low credit scores, credit arrears, current mortgages, or even bankruptcies
  • Resolving unexpected liens on the title
  • Managing foreclosure situations
  • Exploring unique financing needs/opportunities

Beyond B-lenders, another alternative is private or unregulated lenders, which can include individual investors seeking opportunities. They are not subject to regulation by any agency, and their rates and fees may be relatively high.

These lenders are not required to stress test mortgage applicants, but many may abide by lower qualification rates. As a result, getting approved for a loan through an alternative or uninsured lender can be easier than through a traditional bank or credit union. It is vital to carefully assess the deal offered by unregulated lenders, as lower qualification rates may come with high interest rates or penalties.

Considerations for Alternative Mortgages in the “B” Lender Space

Before considering an alternative mortgage, ask yourself:

  1. What issue is preventing me from qualifying for a mortgage with a traditional lender?
  2. How long will it take to address this issue and qualify for a mortgage?
  3. How much do I have available for a down payment?
  4. Am I willing to wait to qualify for a regular mortgage, or do I need to secure a home quickly?

If you’re ready for an alternative mortgage due to credit challenges or if you prefer not to wait for traditional lender qualification, consider these five questions when reviewing any alternative mortgage product:

  1. What is the interest rate?
  2. What are the penalties for missed mortgage payments, and how are they calculated? What are the costs for exiting the mortgage altogether?
  3. Is there a prepayment privilege? Can you avoid penalties by making higher mortgage payments monthly?
  4. What are the costs of each monthly mortgage payment?
  5. What does the renewal process look like?

The alternative lending space can be complex, so if you’re struggling to secure an A-lender mortgage, I’d be happy to discuss your options and help you explore alternative possibilities. Don’t hesitate to get in touch!

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