Alternative Lenders, also referred to as Alt A banks or “B” lenders are no longer just a trend. If you don’t meet the big banks lending criteria, an Alt A Lender might just be the right fit for you!
Approvals within 24 hours
Need a different solution?
If one of the big banks has turned you down for a mortgage, you’re not alone. Over the past year, job closures and layoffs have left many with a lower income and a lower credit score. And the government again raised the minimum mortgage qualification threshold.
Additionally, according to The National Bank of Canada’s Housing Affordability Monitor report, every quarter of 2021 showed a decline in housing affordability at the fastest rate in more than 26 years. It’s no wonder people are turning to alternative mortgage funding to buy a home.
If your lender has turned you down, there are mortgage alternatives. Find out why and how a B Lender can often get you into a new home when the big banks can’t.
Big banks consider many factors before approving or denying a mortgage. Still, two traits most common to those who get denied and seek alternative lending are poor credit and insufficient income.
Most people denied a traditional mortgage have poor credit. While a low credit score is never the sole determining factor, most banks require a minimum credit score of 620.
Some will accept a credit score as low as 600 providing other criteria are exceeded. Still, a lower credit score is usually the result of other factors that would disqualify a borrower anyway.
A lack of credit is commonly considered as much of a risk as poor credit by the big banks, and younger borrowers are denied as often as those with poor credit.
Your income must meet a certain threshold to qualify you for a conventional mortgage. It is based on the amount you want to borrow and your other debt obligations.
Lenders refer to it as your debt-to-income ratio (DTI). The higher your DTI, the less money you have available to pay current and future debt obligations. And the less likely you will qualify for a traditional mortgage.
Most banks want a DTI that’s 42% or lower. Still, even with an acceptable DTI, you can fail to qualify if you cannot prove a stable income.
Those who are self-employed or lack a work history considered stable by conventional lending standards are often deemed high risk. Traditional mortgage lending is usually not an option for many of these borrowers.
Thankfully, alternative mortgage lenders do not look as unfavorably on these two factors as do the big banks. The willingness of alternative lenders to consider a borrower’s less-than-perfect and unique financial situation, and lend outside of federal guidelines, has made alternative lending a popular solution in Canada.
While many people were once hesitant about alternative lending, its demand is growing. Canadian Mortgage Professional magazine reports a continued increase in alternative mortgage lending. Experts credit it to the introduction of B-20 lending guidelines established by The Office of the Superintendent of Financial Institutions (OSFI).
These guidelines tightened federally regulated lender requirements. They also left many borrowers ineligible for a mortgage.
One requirement of the OSFI is the minimum qualifying rate (MQR). This is also known as the “stress test.”
It tests a borrower’s ability to continue mortgage payments if hit by difficult economic circumstances. This might include a rise in interest rates or a loss of income.
So while your current circumstances could technically make you eligible for a mortgage, this stress test of what might happen could disqualify you. The stress test was designed to prevent borrowers from taking on a mortgage they could not afford, but it also prevented some borrowers from buying a home at all.
There was once a time when most people had excellent credit and a steady source of income. They could get mortgage financing from a bank. But, this is rarely the case now.
In fact, if you have less-than-perfect credit or can’t prove your income, you are statistically the new norm.
However, if you fit into the less-than-perfect category defined by Canada’s big bank criteria, you can all but forget about approval from one of them. If you aren’t the perfect candidate from a credit and income perspective, you have almost no chance of getting approved.
Thankfully, alternative mortgage lenders believe that being denied a mortgage by a major bank shouldn’t prevent you from buying a home and they will lend without putting your finances through a stress test.
To help fill the void of the big banks, alternative mortgage lenders have stepped up. These lenders tend to approve deals based on common sense rather than common criteria. They generally put greater consideration into how much equity you will have in a new home and less into lousy credit history or income.
Struggling, hopeful homebuyers are flocking to experienced mortgage brokers to arrange financing through these alternative lenders. They recognize that poor credit or insufficient income doesn’t necessarily mean you can’t afford a home.
If you have been turned down for a mortgage because you don’t fit the definition of an ideal borrower, call us today at 1-855-668-3074 to find out how we can help.
Alternative mortgage lending is simply an alternative to big bank lending, just as the name suggests. Alternative mortgage lenders include credit unions, smaller banks, private mortgage lenders, and B Lenders.
The big banks are classified as A Lenders. You may be a long-time customer of a big bank for your other banking needs, but that doesn’t mean they’ll give you a mortgage. B Lenders, however, often will.
While B Lenders are not directly regulated by the federal government, most indirectly follow federal lending regulations. This allows them more flexibility in evaluating an applicant.
There are some other notable significant differences between B Lenders and A Lenders.
The most significant difference between an A Lender and a B Lender is lending criteria. Big banks want to see perfect credit and stable, verifiable income.
In contrast, B Lenders place a lot more emphasis on how much equity you have (or will have) when underwriting their approvals; they rely on common sense rather than just stringently following federal lending guidelines. Alternative mortgage lenders are not governed the same way big banks are. Therefore, they can make exceptions and do so often.
As a rule, B Lender rates in Canada are moderately higher than those of traditional lenders. However, mortgage rates are only negligibly higher, and these lenders are far more flexible than the big banks. In particular, most alternative lenders will overlook most poor credit scores and be lenient with qualifying income.
For the most part, B mortgage lenders will offer all of the same products that traditional big banks do. Most alternative lenders in Ontario and other Canadian provinces will offer:
Additionally, alternative lenders offer a variety of products and they are also more flexible than the bank. For example, many of these lenders will entertain:
There are no standard qualifications that make someone a good candidate for an alternative mortgage. And that is the very reason why they are an attractive option for anyone a big bank has denied.
B Lenders don’t believe in one-size-fits-all qualifications. While they may loosely follow federal lending guidelines, they evaluate each borrower’s unique financial situation to determine eligibility and risk.
Regardless of why you’ve been turned down for a traditional mortgage, the next step you should take to homeownership is to contact a mortgage broker specializing in alternative lending who can evaluate your situation and match you with a lender.
Turnedaway.ca has long-standing relationships with the best alternative lenders in Canada that allow us to negotiate the best interest rates and terms for our clients. Apply online today so we can get to work finding you an alternative lender.
As with anything, there are both pros and cons to alternative lending. Not all apply to all borrowers, but there are a few that apply to most, and essential to keep in mind when considering B Lending options.
The obvious upside to using a B Lender is the financing solution they provide to those who don’t meet strict A Lender qualifications.
B Lenders are less stringent on qualification guidelines. They look more closely at whether your current circumstances make you a good candidate and worry less about how future events that might not happen could make you more of a risk.
They allow much more leniency on income, credit scores, debt-to-income ratio, and other criteria on which big banks take a hard line.
For example, many B Lenders accept a credit score as low as 500 if other criteria are above par. That is 100+ points lower than the banks’ minimum required credit scores.
Another advantage is that B Lenders often lend on a 3-year term or less, whereas a typical bank mortgage is usually a 5-year term or longer. This can be important to borrowers who are working to improve their finances. They can often qualify for a traditional mortgage at a lower rate at the end of their alternative mortgage.
The biggest downside to alternative mortgage lending is the cost.
B Lenders have higher interest rates and closing costs. For instance, B Lenders require borrowers to pay for a property appraisal, whereas most A Lenders do not.
Also, most B Lenders require a minimum down payment of 20%, which can be hard for some borrowers to provide. Your financial situation could require an even greater down payment.
Still, while alternative lending may cost you more than traditional lending, it can be better than the other alternative, which is not buying a home. Using a B Lender to get you into a home can provide you with the opportunity to be a homeowner while you better your financial situation rather than waiting until your finances are improved.
While having a list of alternative mortgage lenders in Ontario, or any other province for that matter, might seem helpful, it would likely give you a headache to try to sort through it. It certainly would be difficult doing the legwork to determine which lender would be best suited to work with your financial challenges while giving you the best rate.
Working with a mortgage broker familiar with the various alternative mortgage lenders can save you time, money, and frustration getting into a new home.
Hiring a mortgage broker to help you navigate your options is always in your best interest. Equally important, a mortgage broker who specializes in alternative mortgage funding will help you find the best B Lenders to fit your situation.
Turnedaway.ca has been dealing with alternative mortgage lenders since the concept evolved. Besides being a namesake for alternative lenders, we understand the products they offer. And we have established long-standing relationships that allow us to negotiate the best interest rates and flexible terms for our clients.
Finally, if you have been turned away from a traditional lending institution because you don’t fit in their “cookie-cutter” mold, let us show you how we can help. Call us today at 1-855-668-3074 or apply online and let us show you what 30 years of experience can do for you.
We can’t thank you enough for all your help with our mortgage. We were skeptical about filling out an online application but we had tried several banks and due to our credit, couldn’t find anyone to help us. Getting a call within 15 minutes of submitting our application to go over the application put my mind at ease but my husband and I were both shocked to receive a call the same day with an approval. We are still amazed at everything you did considering how difficult the banks made our situation sound. Again, from the bottom of our hearts thank you so much!
Marilyn & Bob T, Whitby Ontario