Mortgage is one of the biggest investments you’ll make in your lifetime and, since a mortgage can last for many years, you need to be sure you’re making the right decision. The good news is that there are plenty of mortgage lenders available and what works for one person might not work for another. But if you’re feeling overwhelmed by all of the mortgage options out there and just want to know what types of mortgages exist and where to find them, the alternative mortgage blog post is for you.
What are Alternative Mortgage Lenders?
Different lending criteria may apply to alternative mortgage lenders than big banks, so if you don’t meet the requirements for a traditional bank mortgage, an alternative lender could provide an option. These types of lenders are also commonly known as ‘B’ lenders, but believe it or not they have nothing to do with quality, as some people believe that because they are called B lenders, they are second grade citizens. B lenders simply willing to take on more risks and due to the fact that regulations impact them differently in comparison to A lenders they can allow for more exceptions and relaxer lending policies.
They often a perfect solution for self employed clients where typically do not show high income on their tax return and subsequently their bank in unable to help them.
Furthermore, because they have a wider lending criterion, often you can borrow more money through an alternative lender in comparison to your bank. So, if you find yourself in a scenario that your bank can only qualify you for a certain amount of mortgage, but you need more, the chances are Alternative lenders will be able to provide that.
Alternative vs Conventional Mortgages
Conventional mortgages generally offer lower interest rates than other types, predictable terms and conditions, and the security of borrowing money from a federally regulated bank. Conventional mortgages rarely exceed 80% of the total property value, so borrowers must come up with a larger down payment (of at least 20%).
To get a conventional mortgage, you’ll need to show that your income is enough to cover your monthly payments. A-Lenders will look at things like your credit history and score, your income, how much debt you have compared to your income, and whether you can pass a mortgage stress test.
In contrast, alternative mortgages are typically sought because they have less stringent eligibility requirements and come with a slightly higher rates in comparison to A lenders. They may also cover a larger percentage of the total value of your home (loan-to-value ratio) than traditional mortgages do.
Ask the Experts
Alternative mortgages are an option for those who have unique circumstances where due to strict regulations banks or other A lenders are unable to support, or for those who want to borrow more money than what is available through a traditional bank. As long as you understand the ins and outs of the product you’re applying for and have done your research, alternative mortgages are a viable way to help you get on the property ladder.
If you are interested in getting a mortgage in Canada, contact our Orchid Financing team. We can help find solutions that fit your unique circumstances.
Reach out to schedule a free consultation today!