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In the world of mortgages, we use several different terms to describe the lenders we work with: ‘A’ lenders, ‘B’ lenders, alternative lenders, private lenders and so on.

‘A’ lenders include the banks and their direct competition.  These ‘A’ lenders give mortgages to clients who have all the pieces of the puzzle when applying - strong credit, good job stability.  These lenders have strict guidelines they use to decide who they will give a mortgage to.  For those clients who don’t qualify under these strict guidelines, we have options called ‘B’ lenders or alternative lenders.

These are the lenders I want to write about today.  What is a ‘B’ or alternative lender, and who do they lend money to?

We call them alternative lenders because that is exactly what they are, lenders who give alternative options for certain types of borrowers. They look at clients who have had some credit issues at one time or another, are self-employed and pay themselves as little as possible to minimize their income tax, recently changed jobs, or have a second part-time job that traditionally a bank wouldn’t let us use the income from in the mortgage application. Alternative lenders will also look at someone who has only been self-employed for a short time versus the banks who need two-year self-employment history.  Let’s take a closer look at what that means.

Alternative lenders don’t need the traditional paperwork to verify how much money someone who is self-employed makes. For example, a bank or ‘A’ lender would generally require two years of personal tax returns and Notice of Assessments as well as two years of information on the business, it’s revenue and expenses.  They ask for all of this information, but for the most part are focused on one number for your income: line 150 on your notice of assessment.  Most self-employed people do not pay themselves enough to qualify for their personal debts and a mortgage.  Alternative lenders will let us look at what the company is actually making for income as a starting point, and this is quite often enough to qualify someone for a mortgage.

Alternative lenders are also more forgiving when it comes to past credit issues.  They will look at you much sooner after a bankruptcy or consumer proposal/credit counseling than a traditional bank.  They will also look at someone with current credit issues depending on other details in an application.

It’s great to know all about who alternative lenders will assist, but who are these alternative lenders?  Believe it or not, most ‘B’ or alternative lenders are banks. Yes, banks!  For example, Equitable Bank, B2B Bank or Home Trust Bank are all ‘B’ lenders I work with on a regular basis.  CMLS Bank also has alternative lending options, as do many of the other broker-based lenders I work with.  Alternative lenders can also be a division of a bank - Optimum is an arm of Canadian Western Bank.  Knowing this helps my clients feel comfortable in who these lenders are.

I help clients get mortgages through these alternative lenders who provide options when the main banks and lenders aren’t able to, whether their issues are credit related, employment related, or income related.  It is important to note these mortgages require a minimum of 15% down and do come with a higher interest rate than what ‘A’ lenders and banks can offer.  This is because the risk is higher when lending to someone who doesn’t have a long history being self-employed or has had credit issues along the way.  

It is important to work with a broker who has relationships with banks and ‘A’ lenders AND alternative lenders because you’ll not only have access to more options, but someone who can help you decide which option is going to be best for you in the long run.

If you’ve been declined by a bank, it’s worth giving me a call to see if there are alternative lender options available to you. I’m here to help!

- Nicki