Beyond B-lenders are Private mortgage lenders another alternative. Which are known as Private or Unregulated lenders. These could just be individuals with money who are looking to invest. They are not regulated by any agency, and their rates and fees could be quite high.

These lenders are not required to stress test mortgage applicants, but many will abide by lower qualification rates. As a result, getting approved for a loan through an alternative or uninsured lender can be much easier than going through a traditional bank or credit union.

WHY IS ALTERNATIVE LENDING NECESSARY?

Private Mortgage Lenders don’t require income or Credit Qualifications. Therefore, Private mortgage lenders have continued to become an increasingly popular choice for homeowners and have maintained an important role in Canada’s housing market. 

Why should I consider a private mortgage lender?

If you have a low credit score below 600, you will likely need a private lender. The mortgage lenders can use your credit score to look at your financial health. Which can translate into being approved for a mortgage or not.

A minimum credit score of 600 is required for CMHC mortgage insurance. As most B Lenders deal with insured mortgages. If not being able to qualify for a CMHC insured mortgage will exclude you from many B Lenders. Some Lenders may also require you to obtain mortgage insurance even if you make a down payment larger than 20%.

Alternative lenders (Private Lenders) cater to individuals which lack a strong credit history or hard to verify income. These individuals include (recent immigrants, or the self employed, for instance). As a result, these lenders generally have lower entry qualifications, which are offset by higher interest rates.

• CRA arrears
• Income issues such as non-traditional income as with self-employed borrowers
• Credit issues such as low credit score, credit arrears, current mortgage or even bankruptcies
• Unexpected liens on title
• Foreclosure situations
• Unique financing needs/opportunities

New Immigrants

As Equifax and TransUnion only collect credit information within Canada. Those with a foreign credit history may have to start from scratch. Some lenders may provide exceptions. Newcomers to Canada may also have limited Canadian employment history. Some banks require higher downpayment. For example RBC requires a minimum 35% down payment for new immigrants to Canada with less than two years of Canadian employment history. RBC would also require a letter of reference from the mortgage applicant’s home bank.

Self-Employed/Irregular Income

Banks often require two years of employment history to prove that they have a steady source of income. Getting a self-employed mortgage presents challenges, As most of the the self employed individual declare low income or if your income is not steady and fluctuates significantly. This especially impacts those whose income is based on commission or tips or those who are affected by pandemic lockdowns.

Foreign Income

Those with foreign income may also find it more difficult to qualify for a mortgage, if it is not easily verifiable or recognized. However, exceptions apply. For example it was reported that BMO requires foreign clients to make a down payment of at least 35% to qualify for a mortgage. Scotiabank was found to require the verification of foreign income sources if a down payment of less than 50% was made.

How do I find a private mortgage lender?

Most private mortgage lenders only work with mortgage brokers, These mortgage brokers will help you find the best type of mortgage that is most suitable for your financial situation. They negotiate with mortgage lenders, and submit documents on your behalf. The Mortgage brokers may or may not be compensated by the private lenders. If they receive a commission or any compensation, they must disclose the amount to their client.

Private Mortgage Lenders vs. Banks

Private mortgage lenders are an alternative to those denied by traditional lenders. These includes Canada’s Big Six Banks (RBC, TD, Scotiabank, BMO, CIBC, and National Bank), chartered banks, and credit unions. Banks are federally regulated in Canada, and are required to conduct a mortgage stress test. It helps to determine if you are able to afford your mortgage payments if interest rates rise.

Some provincially regulated financial institutions such as credit unions may also conduct a mortgage stress test. Although they are except. If you do not qualify the mortgage stress test, The lender cannot lend to you even if you meet all of their other criteria. Like credit score. Private mortgage lenders are not required to conduct a mortgage stress test.

Private Mortgages as Temporary Funding

The private lender mortgages serve to bridge the gap for those with temporary financial problems. If you have recently lost your job, divorced, or met unexpected large expenses. A private lender can be a a life saver solution until your financial situation improves.

They can also act as bridge loans while you try to secure longer-term financing. For example financing the down payment on the purchase of a new home while you are awaiting the sale of your current home. It can also be used to temporarily fund renovations to increase value of your home. The quick turnaround time of private lenders gives you access to financing. With some lenders providing same day approvals.

Private Mortgage Lenders vs B Lenders

B Lenders, such as Mortgage Finance Companies (MFCs), are quasi-regulated lenders. They are not directly regulated federally but indirectly follow regulations due to the nature of their business. Both private mortgage lenders and B Lenders are not required to conduct a mortgage stress test. Therefore, they have leaner lending requirements than A Lenders.

B Lenders, which are usually larger financial companies, mainly deal with insured mortgages. This means that the loan-to-value (LTV) ratio would be higher than 80%. A down payment of less than 20% is required. CMHC mortgage insurance has specific requirements such as a minimum credit score, purchase price limit, and amortization period limits. Private mortgage insurance providers, namely Canada Guaranty and Sagen, are alternatives to CMHC mortgage insurance.