Once upon a time, those in Mississauga, Toronto, and the GTA dreamt of owning their own home. But increasingly, the path to homeownership became out of reach due to stringent lending criteria set by traditional banks. However, a new array of lenders emerged, offering alternative mortgage solutions that opened doors for aspiring homeowners. So, let’s get familiar with this very important lending niche!
What are Alternative Mortgage Lenders?
Unlike traditional banks, these lenders often operate with more flexibility, accommodating borrowers outside the conventional credit criteria. What sets alternative lenders apart? It’s the ability to pivot, adapt, and tailor financial solutions to meet the diverse needs of borrowers. These lenders, include credit unions, B lenders, Mortgage Investment Corps (MICs), and private lenders, Let’s take a closer look at each:
Credit unions are member-owned and provide a wide array of financial services and products, including accepting deposits, making loans, and offering other banking services. Credit unions, often more lenient in their credit assessments, support borrowers with unique financial situations, offering an alternative path to mortgage approval.
B lenders, also known as non-conforming or alternative lenders, specialize in providing mortgage financing to borrowers who may not meet the stringent criteria set by banks. B lenders take a more flexible approach to underwriting, often assessing mortgage applications using a more holistic approach, considering factors beyond just credit scores. While interest rates may be higher compared to prime lenders and fees may be charged, their flexibility in underwriting allows borrowers with unique financial profiles to access mortgage opportunities that may be otherwise elusive.
Top B Lenders include –
- Home Trust: Home Trust is a leading alternative lender in Canada, specializing in providing mortgage solutions to self-employed individuals, newcomers to Canada, and individuals with credit challenges.
- Equitable Bank: Equitable Bank offers a range of alternative mortgage solutions, including home equity lines of credit (HELOCs) and reverse mortgages. They cater to borrowers who may not meet the strict traditional lending criteria and focus on finding tailored solutions to meet their clients’ needs.
Mortgage Investment Corps (MICs)
For a homebuyer who doesn’t qualify for a traditional mortgage, a Mortgage Investment Corporation (MIC) in Canada can be another solution. When traditional lenders have stringent criteria, MICs may offer more flexibility. These corporations pool funds from various investors and use them to provide mortgages. As a homebuyer, you might find an avenue through a MIC if your financial situation or credit history doesn’t meet the requirements of traditional lenders.
Private lenders, as the name suggests, are individuals or organizations that lend their own money rather than funds deposited by customers. Operating outside the regulatory constraints of traditional banks, private lenders are often willing to take on higher levels of risk in exchange for potentially higher returns.
Private lenders focus less on credit scores and more on the value of the financed property. They often serve as a viable option for borrowers who may not meet the requirements of credit unions, B lenders, or MICs. Private lending comes with its own terms and conditions, including higher interest rates, fees, and shorter repayment periods.
Why do borrowers opt for the private mortgage route? For many, it’s the lifeline they need when traditional banks slam the door shut. Private lenders play a pivotal role in assisting borrowers with imperfect credit, non-traditional income sources, or those facing unique financial circumstances. Their focus on the property’s value rather than strict credit criteria positions them as a lifeline for individuals navigating challenging credit scenarios.
Private lenders are particularly valuable when it comes to second mortgages, which are used when homeowners don’t want to break their current mortgage or don’t qualify for a home equity line of credit to access their home’s value. There are many reasons for getting a second mortgage, including:
- Debt consolidation – credit cards, tax arrears, unsecured loans – to reduce interest costs, boost cash flow, and improve your credit score.
- Home renovations, including renewable energy retrofits
- Large expenses – wedding, educational costs, medical bills, legal bills, divorce settlement, helping family, a big-ticket purchase, immigration costs
- Investing in a rental or vacation property
- Business needs
Expanding Housing Opportunities
The emergence of alternative mortgage lenders has expanded housing opportunities for Canadians. These lenders offer more flexible lending criteria, enabling borrowers with unique financial situations to access the funds needed to purchase their dream homes or access their equity for financial needs or opportunities. Whether it’s individuals with non-traditional income sources, self-employed individuals, or those with less-than-perfect credit scores, alternative lenders have become a lifeline for many prospective homeowners and existing homeowners.
Additionally, with higher rates, borrowers are finding it hard to qualify under the mortgage stress test where they must show they can afford their mortgage payments at a rate of two percentage points higher than the mortgage contract rate. With an alternative lender, you can have the option of getting a mortgage without the stress test requirement.
By offering options to individuals who may have previously been excluded from homeownership, these lenders contribute to increased housing affordability and accessibility. According to Stats Can, in the second quarter of 2023, outstanding loans from credit unions, private lenders, and mortgage investment corporations reached $388.6 billion.
Additionally, alternative lenders provide competition, which fosters innovation and drives the market to adapt to the changing needs of borrowers.
While alternative lenders provide access to financial opportunities, it’s important to keep in mind that rates are higher than with traditional mortgages and fees may apply. It’s essential to weigh the costs against the benefits while working with a trusted expert.
Joe Purewal, Mississauga Mortgage Broker – Alternative & Private Mortgage Specialist
Top-rated Mortgage Broker Joe Purewal is ready to review your situation to determine if an alternative lender is right for your situation. With a wealth of expertise, Joe can provide invaluable insights into credit unions, B lenders, MICs, and private lenders, helping individuals make informed decisions. If you are in Mississauga, Toronto, or the GTA and need to break free from traditional lending constraints, Joe Purewal is your trusted partner in exploring flexible and innovative financing solutions. Talk to Joe today!