If you see getting a mortgage in your future, there are a few different ways to ensure you get approved. After a review of my client’s current financial profile, I will fit them into the A, B or C category of lending. Each of these lender types will charge a variety of different rates, the products they offer and lastly, the requirements that must be met by the borrower in order to qualify. Below are brief descriptions of the most notable differences;
Also known as ‘prime lenders’, these lenders offer best rates in exchange for strict mortgage application and property requirements, as well as minimum credit score levels. These lenders often offer generous pre-payment privileges and no upfront fees are charged. In this group you will find Banks, Credit Unions and Mortgage Companies. All of these ‘A’ Lenders have to go through one of the 3 Mortgage Insurance companies available in Canada if your mortgage is higher than 80% of the home value. Working with the insurance companies allows the ‘A’ Lenders to offer niche products with a reasonable downpayment, such as mortgages for the self-employed who choose to take minimal wages from their company, and buyers who are New-to- Canada. As the insurance companies are taking on the majority of the risk in these cases, you not only have to meet the lender requirements, but also fit under the insurer guidelines as well.
Basically, there are a number of conditions you must meet in order for your mortgage to qualify through an ‘A’ lender. If you don’t fit into that box, don’t worry as there are other financing options available to you, though you may be required to contribute more of a downpayment.
In terms of document requirements, the ‘A’ lenders don’t have very much flexibility. If you are unable to provide any of the requested documentation, the majority of the ‘A’ Lenders may accept some kind of alternative, though the list is pretty short. If you do anticipate some issues, ensure you have a detailed chat with your Mortgage Professional about what kind of documents you will can provide as it’s easier for them to know upfront about document alternatives than to ask for exceptions later.
Also known as “subprime” lenders as they tend to do the mortgage financing that the “prime” or ‘A’ lenders pass on. When you’re sitting just outside the box, the ‘B’ lenders may just be a perfect fit for you in the short term. They tend to be more forgiving and understanding if you have any credit issues, are newly self-employed, or your downpayment source is not meeting the “A” lending standards. In return for overlooking some minor flaws with your financial profile, they will charge a bit of a higher interest rate and there is a chance of having to pay an upfront fee to them.
I have found that the ‘B’ lenders put more emphasis on the property than the borrower and therefore an appraisal to confirm the property condition and value is a mandatory requirement when working with the subprime lenders. You can expect shorter mortgage terms with higher rates when borrowing through a ‘B’ lender until you improve your financial position enough to qualify for a mortgage with the ‘A’ Lenders. Majority of ‘B’ Lenders max out at financing 80% of your home value, there are a few exceptions where these lenders may offer combo products allowing for financing up to 85% or even 90% of the value of the home. There’s always the caveat that you may have to meet additional conditions to qualify. Every borrower’s situation is different and these lenders tend to favour common sense over firm policies and procedures.
These types of lenders are more commonly known as private lenders, and you may know them as individuals who have some extra money to lend at a relatively high interest rate with substantial upfront fees. Most private lenders are groups of lenders such as Mortgage Investment Corporations (MICs) and Real Estate Investment Trusts. (REITs). Offering mostly 1st and 2nd mortgages, these lenders have considerably more flexibility for borrowers and offer products to those who may have some credit challenges or their income has been inconsistent. For those who would prefer to get a mortgage with minimal proof of income or assets, there are options available from private lenders as they work on a case-by-case basis and in turn it is up to your Mortgage Professional to negotiate a rate and term on your behalf.
I hope this article highlighted the many mortgage financing options out there for borrowers, although this is just the tip of the iceberg. Explore all mortgage avenues by working with an experienced mortgage professional you can trust who will help you navigate your options and determine which one best suits your lifestyle and financial goals.
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