Discover the best mortgage option for you with non-traditional lending
Believe it or not, there are quite a few non-traditional options when it comes to finding the right fit for your first mortgage. Yes, most homebuyers go for traditional lenders – also called A Lenders – which cater to clients with a good credit score and income stream.
However, there are additional options to help those first-time homebuyers still working to build up their financial record for a chance at purchasing their dream home. In this guide, you’ll learn some lesser-known options you can explore to get the approval and rate you’re looking for, including: private lenders, monoline lenders, B lenders, and credit unions.
Reasons to Consider an Alternative Mortgage Lender
If you’re in the process of building up your credit history or perhaps are not employed in the traditional sense (working for a business or company), you have no need to worry – these alternative mortgage options are built to help YOU.
These options may be especially beneficial to aspiring homebuyers who:
- Are Self-Employed
- Have a Low Credit Score
- Earn Non-Traditional Income
- Are Unable to Meet Traditional Mortgage Requirements
Private Mortgage Lenders
Private mortgages are lent out by private mortgage companies or investors rather than by a bank or credit union. Because they’re not regulated by the government, they’re often able to lend out to more risky borrowers. Private mortgages typically last for a short term – usually less than one or two years.
Pros: If you want to purchase a house fast but need a bit more time to get your financial situation in order before being eligible for a traditional mortgage, this option can give you extra time to get your finances back on track while still being able to purchase your property when you want to. Plus, because private lenders are the least regulated of all lenders in Canada, that usually means they have more flexibility and are willing to negotiate.
Cons: Although these lenders offer flexibility, the rates they offer are typically much higher than banks in order to cover the higher risk. This is also a short-term solution as once you reach the end of your term, you’ll need to find a different lender or financing solution.
A monoline lender is someone who deals with only one type of lending. For house financing, it’s all about mortgages. They follow the same rules as Canadian banks, and are typically only available via phone or email since they don’t have physical branch locations.
Pros: Because they don’t have storefronts, monoline lenders are able to pass that savings onto their lenders. They typically offer faster turnaround than banks and more flexible approval guidelines.
Cons: They’re typically lesser known and you’ll want to make sure you understand the fine print for paying back a monoline mortgage, but overall they’re low risk and sometimes can offer a better interest rate than a larger bank.
B Lenders are basically a step up from private lenders and still offer approval flexibility, as they’re not directly federally regulated, but they do have some additional requirements. These lenders can offer mortgages with unique features, such as requiring only interest payments or allowing non-conventional income sources, such as self-employment.
Pros: With the additional flexibility, you can worry less about your credit score or source of funding and focus more on finding the right B lender to support you. Plus, these lenders specialize in helping self-employed borrowers be set up for mortgage success.
Cons: B-Lenders mainly deal with CMHC-insured mortgages, which means that they have requirements such as a minimum credit score and maximum debt service levels. The requirements are still less than traditional banking, but more than that of private lenders.
A credit union operates a lot like a standard bank, offering bank accounts and financing among other services. They’re considered not-for-profit businesses and provide financial services exclusively to their members, and they typically have a unique ownership structure different from a bank. To become a member of a credit union, you’re often required to own shares in the union.
Pros: Interest rates on credit union mortgages are often comparable and, at times, better than rates at big banks. Credit unions are one of the most popular alternative lenders in Canada, as they offer that familiar neighborhood bank comfort without that big bank feel.
Cons: To be able to apply for a mortgage loan with a credit union, you’ll most likely be required to own shares in the union. This typically costs $100 but can range.
Make Your Mortgage Work for You
With this information in mind, you should feel excited to have so many mortgage options available to fit where you’re at financially and what you’re looking for in a home loan. There’s no one-size-fits-all when it comes to home mortgages, so take the time to explore your options so you find your perfect fit.