If you don't meet the standard criteria for a traditional mortgage, what alternative options do you have?

Mortgage lenders can generally be categorized into three basic categories based on their type and source of funding:

Traditional or “A” Lenders:

Banks: These include major Canadian banks like RBC, TD, Scotiabank, BMO, and CIBC. They offer a wide range of mortgage products and financial services.

Monoline Lenders: These are mortgage finance companies that focus solely on providing mortgages and related products. They don't offer other banking services and often work through mortgage brokers.

The key features of traditional or “A” lenders typically have the most stringent lending criteria, require a strong credit history, a stable income, and collateral for certain types of loans. They offer competitive interest rates, and are regulated by federal and provincial authorities.

If you do not meet their lending criteria, here are your possible options: 

“B” Lenders (Alternative Lenders):

Mortgage Finance Companies: These companies specialize in providing mortgage financing. They often work with borrowers who may not qualify with traditional lenders.

The key features of “B” lenders have more flexible lending criteria compared to traditional lenders and may be willing to work with borrowers who have less-than-perfect credit, non-traditional income, or other unique financial circumstances. They often charge higher interest rates than “A” lenders.

Private Lenders:

Individuals: Private individuals who lend their own money to borrowers for real estate transactions.

Private Mortgage Investment Corporations (MICs): These are private entities that pool investor funds to provide mortgage loans to borrowers. They may have various sources of funding, including individual investors and institutions.

The key features of Private lenders have the most flexibility in terms of lending criteria but typically charge the highest interest rates. They are not subject to the same level of regulation as traditional lenders and B lenders, and their terms can vary widely.

Digging deeper

Here are other advantages or working with alternative lenders are: 

Speed and Convenience:

Alternative lenders tend to offer quicker loan processing times compared to traditional lenders, which often have lengthy approval processes.

This speed can be especially beneficial for individuals that need quick access to capital for time-sensitive situations.

Range of Products:

Alternative lenders typically focus more on specific lending products, such as personal loans, small business loans, peer-to-peer lending, and online lending platforms.

Technology and Online Platforms:

Alternative lenders often leverage technology to provide online platforms for loan applications and approvals.

Risk Tolerance:

Alternative lenders might be more willing to take on higher-risk borrowers, but this often comes with higher interest rates to compensate for the increased risk.

Personalized Approach:

Alternative lenders may take a more personalized approach to lending, considering the individual circumstances and needs of borrowers.

In many instances, utilizing alternative lenders should be seen as a short-term strategy, with the ultimate goal being to transition to a traditional lender once, for instance, the borrower's credit has been rehabilitated.

It's important to note that both traditional and alternative lenders play crucial roles in the lending landscape. Traditional lenders provide stability, a wide range of services, and are heavily regulated to ensure consumer protection. On the other hand, alternative lenders offer opportunities for individuals that may not meet the criteria of traditional banks. 

Before working with any lender, it's advisable to carefully review the terms, interest rates, fees, and reputation of the institution to make an informed decision. Mortgage brokers can be valuable resources for connecting borrowers with lenders that best match their specific circumstances and helping them navigate the mortgage application process. 

If you find yourself in this situation, please do not hesitate to reach out to us at Fred and Martin Mortgage. We will gladly arrange a meeting with you to thoroughly investigate all the alternative options at your disposal. Best of all, it’s free and could save you thousands of dollars. 

Fred and Martin