You’ve heard a lot about alternative mortgage lenders and wondered if this is the solution to your home buying woes. If you’re struggling to secure a mortgage for your dream home, you’re not alone. Many prospective homeowners face obstacles when dealing with traditional lenders and their strict requirements. If you have an unconventional income source or a less-than-perfect credit score, it can hinder your homeownership dreams.

Alternative mortgage lenders offer a lifeline to those who don’t fit the traditional mortgage lending mold. With flexible solutions tailored to your unique circumstances, alternative lenders are changing the game for homebuyers across the country.

With soaring home prices and interest rates, the demand for alternative lending is on the rise. Which is why now is the ideal time for you to learn how these lenders can make your homeownership dreams a reality, faster and easier than ever before.

But, First…Who Are These Alternative Mortgage Lenders?

Alternative lenders, also called B, subprime, or private mortgage lenders, provide different kinds of home loans for people who can’t get approved by regular banks or need a loan that regular banks don’t usually offer in order to buy a home. These lenders mainly help people who have a lot of equity in their homes, earn money in non-traditional ways like being self-employed, have had credit issues in the past, or have special financial situations that the banks feel are higher risk. 

How Is An Alternative Lender Different Than a Prime Lender?

There are some major differences between an alternative lender and a prime lender which may be the reason to consider one. Some of these include:

Alternative mortgage lenders might not prioritize your credit score as highly as traditional lenders when reviewing your mortgage application. Even though their requirements might not be as strict as regular banks, some alternative lenders might still have certain credit score criteria. Before applying for a mortgage loan, it’s smart to check your credit score and make sure it’s accurate and free of errors. 

You might skip the Stress Test. Another difference between regular banks and alternative mortgage lenders is that the latter might not be regulated by the government. This means you might be able to get a home loan from an alternative lender without having to go through the mortgage stress test.

Large down payments may not be required. Some alternative mortgage lenders might let you borrow a larger portion of the home’s value compared to traditional lenders. This makes alternative lenders appealing to people who can’t afford the big down payments usually required by regular banks for home loans.

Are There More Than One Type Of Alternative Mortgage Lenders?

There are a few different types of mortgage lenders that offer what are considered non-traditional or alternative mortgage solutions such as:

Private Mortgage Lenders

Private mortgages are loans offered by individual investors instead of banks or credit unions. These mortgages aren’t overseen by government financial regulators like the Office of the Superintendent of Financial Institutions (OSFI) or similar provincial authorities. This lack of regulation means private mortgages can be given to borrowers who may be considered risky by traditional lenders. Due to this risk, private lenders usually charge higher fees and interest rates, making them a choice usually considered as a last resort for homeowners.

B-Lenders

This mortgage option is ideal for borrowers who don’t meet the tough requirements of top-tier lenders. This may be people with more home equity or assets, who are self-employed or have unconventional income sources, or face other issues that disqualify them from prime lending. B lending mortgages usually come with higher interest rates than prime options and may have mortgage terms of just 1 year, but some lenders might extend them up to 5 years. B-lender mortgages sometimes require only interest payments as well so it’s important to review all the fine print carefully before signing the dotted line.

Bridge Financing

If you’re purchasing a new home but haven’t sold your current one yet, you might need money for the down payment on the new property. That’s where bridge loans come into play. Bridge financing gives you funds you need to cover the new down payment while you’re waiting for your current home to sell.

Bridge loans typically last for a few months and they are designed to provide flexibility when buying a home so that you don’t have to rush to sell your current one right away. Bridge financing is available from both regular lenders like banks and private lenders.

Vendor Take Back (VTB) Mortgages

A vendor take back mortgage happens when the seller of a property also acts as the lender for the mortgage. In this setup, the seller must own the home completely. The borrower then makes regular payments to the seller, using the home as collateral in case they can’t pay back the loan. These mortgages used to be common before the National Housing Act when homes were cheaper but they are still available in certain situations.

Rent-to-Own

Rent-to-own is an agreement between either a landlord or a rent-to-own company and the tenant. The tenant rents a home with a special arrangement: a part of the monthly rent goes into a savings fund to be used later as a down payment to buy the property. These agreements offer the choice to buy the property anytime during the lease or at the lease’s end.

What Are The Pros of Using An Alternative Mortgage Lender?

When you’re considering using an alternative mortgage lender, it’s important to weigh the pros and cons. Specifically these benefits are often the driving force behind using an alternative mortgage lender.

Better Loan Options – Alternative mortgage lenders usually provide similar mortgage products to regular banks, but they also offer a wider range of loan choices. These options include reverse mortgages, bridge loans, rent-to-own agreements, construction loans, and seller financing.

Faster processing – Alternative mortgage lenders have less strict criteria and fewer demands compared to traditional banks. This often leads to a quicker mortgage approval process. This speed is particularly advantageous for borrowers who need to secure a mortgage promptly after finding their dream home that they want to buy.

Flexibility – Alternative mortgage lenders provide more flexible terms and conditions than traditional lenders, which is a big attraction for borrowers. This flexibility makes it easier for those with poor credit or inconsistent income to meet the qualifications.

More property options: Alternative lenders might be open to financing properties that don’t meet the strict criteria of top lenders, broadening your choices in terms of properties and their locations.

What Are The Cons of Using An Alternative Mortgage Lender?

These are a few of the downsides of using an alternative mortgage lender you will want to think about before making your final decision.

Higher interest rates/fees – Alternative mortgage lenders are taking on greater risk than traditional lenders. This increased risk often results in higher interest rates. Also, unlike traditional banks that are obligated to disclose costs upfront, alternative lenders may have more hidden fees.

Shorter terms – Alternative lenders often propose shorter terms and might not offer options for renewal. This can lead to higher monthly payments in contrast to longer mortgage terms provided by top lenders. 

Less secure – Regular lenders must adhere to government regulations designed to safeguard borrowers. However, these regulations don’t extend to alternative mortgage lenders. So it falls on the borrower to conduct thorough research to verify the legitimacy and compliance of the alternative lender.

Is An Alternative Mortgage Lender The Right Solution For You?

Alternative mortgage lenders usually offer faster and more accessible financing options than traditional lenders. The lower requirements for credit scores and down payments that most of them offer may make getting in the door of your dream home easier.

However, if you’re considering the option of working with an alternative mortgage lender, it’s time to give me a call. I can look at all the mortgage options for your situation and recommend the best alternatives for you so that you can be confident that you’ve made the right choice. Book a consultation with me at this link or give me a call directly at 705-315-0516. We’ll find the right mortgage option for you and get you into your dream home sooner than you imagined!