Alternative Lending Options

If you are denied mortgage financing by traditional lenders like banks or credit unions, it can be discouraging. However, it's important to know that may be other options available. When applying for a mortgage, if your application does not meet the requirements of traditional institutions, you may find yourself in the "Alternative-A" or "B" lending space.

This space includes three types of lenders: Alt-A lenders, MICs, and private lenders. Alt-A lenders are regulated institutions that offer products that cater to consumers with broader qualifying criteria. MICs are similar to Alt-A lenders but are organized according to the Income Tax Act and pool money from individual shareholder investors to lend out on mortgages. Private lenders are individual investors who lend their own funds and may offer higher-risk mortgages.

Before considering an alternative mortgage, you should ask yourself several questions:

What issue is keeping me from qualifying for a traditional “A” mortgage today?
How long will it take me to correct this issue and qualify for a traditional lender mortgage?
How much do I have to improve my credit situation or score?
How much do I currently have available as a down payment?
Am I willing to wait until I can qualify for a regular mortgage, or do I want/need to get into a certain home today?
Is this mortgage sustainable?
Can I afford the larger interest rate?
Can I exit this lender down the road in the event the lender does not renew or I cannot afford this alternative option much longer?
If you are someone who is ready to go ahead with an alternative mortgage due to a weaker credit score, or you don’t want to wait until you’re able to qualify with a traditional lender.

Here are some additional questions to ask when reviewing an alternative mortgage product:

How high is the interest rate?
What are the fees involved and are these fees paid from the proceeds, added to the balance, or paid out of pocket What is the penalty for missed mortgage payments?
How are they calculated?
What is the cost to get out of the mortgage altogether?
Is there a prepayment privilege?
For example, are you able to avoid penalties if you give the lender a higher mortgage payment once a month?
What is the cost of each monthly mortgage payment?
What happens at the end of the term?
Is a renewal an option and what are the costs to renew if applicable What is the fine print?

If you decide to go with an alternative mortgage, there are additional questions you should ask, such as the interest rate and fees involved, penalties for missed payments, prepayment privileges, and costs of monthly mortgage payments. It's essential to review the rates and terms of alternative mortgage products carefully and consider seeking the help of a professional to find the best fit for you.

If you're looking for a mortgage broker that can connect you to alternative lenders, please reach out to us for a connection!

Posted by AMANDA KU on


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