Facing rejection from a traditional lender such as a bank for a mortgage application can be discouraging. But it’s important to keep in mind that there are other options available that may better suit your needs. If your application doesn’t fit the criteria set by big institutions, alternative lending may be a viable solution.
If you’re seeking a mortgage but your application doesn’t fit into the box of big traditional institutions, you’ll find yourself in what’s commonly referred to in the industry as the “Alternative-A” or “B” lending space. Alternative lenders come in three classifications within the mortgage industry:
- Alternative A Lenders – This category includes banks, trust companies, and monoline lenders. These are large institutional lenders that are both provincially and federally regulated. They offer a wider range of qualifying criteria, making them a good choice for those who don’t meet the strict requirements set by traditional lenders.
- Mortgage Investment Companies (MICs) – MICs are similar to Alternative A lenders, but they are structured as a pool of funds from individual investors. This type of lender operates with even broader qualifying criteria and often caters to those with weaker credit or limited job stability.
- Private Lenders – Private lenders are usually individuals who lend their own funds, but they can also be companies formed specifically to lend money for high-risk mortgages. These lenders are typically unregulated and offer loans to those who may not qualify for more traditional mortgages.
All the classifications noted above often have higher interest rates than a bank would, but it will give you the opportunity to purchase the property you want, where in many situations the bank won’t. These lenders can also help you consolidate your debt, even if your credit is weak or you don’t have good job stability. The broader the guidelines are for a particular mortgage contract, the more risk the lender assumes. This, in turn, will yield a higher cost to the borrower, typically in the form of a higher interest rate.
Before considering an alternative mortgage, here are some questions you should ask yourself:
- 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?
Alternative lending isn’t as complex as you would think. Sometimes these lenders will require less paperwork on your end! If you’re considering an alternative lender since the bank has turned you down, instead of working with someone in a call center, give Skip the Bank a call today. Please know that we’re your local mortgage broker and offer personalized service and attention to your financial needs, so we will give you the best unbiased advice without passing judgment on your situation.