Why choose a B lender mortgage in Canada?

When it comes to securing a mortgage in Canada, there are almost too many choices. You might be wondering, where do the B lenders fit in? Mainstream lenders like our major banks are often the automatic go-to for homebuyers. But for some, this leads to getting the run-around or outright rejection, without any constructive suggestions for other options. You should know that there’s another path worth considering: B lender mortgages. Why choose a B lender? Let’s dive in to see which scenarios are a good fit.

Understanding B lenders

B lenders, also known as alternative lenders, are financial institutions who specialize in serving people who aren’t eligible for A lender mortgages. B lenders include trust companies, credit unions, and some Canadian banks. Some Canadian lenders, recognizing that there is a spectrum of borrowers rather than a strict A or B borrower profile, even offer both an “A” side and a “B” side. (What they’re not is private lenders – private lenders can be considered “C” lenders.) B lenders offer a legitimate alternative for borrowers who may not “fit in the box” of mainstream A lenders.

The benefits of choosing a B lender mortgage

Flexible approval criteria

Unlike mainstream lenders who require top credit scores and salaried, verifiable income, B lenders have more flexible criteria. They consider your overall financial picture and have more lenient qualification ratios.

Affinity for self-employed individuals

If you’re self-employed, particularly if you have a lot of tax write-offs, getting approved by a mainstream lender can be challenging. B lenders, however, understand that self-employed individuals can demonstrate their income in ways other than a T4 or Notice of Assessment. This can make it much easier for self-employed individuals to secure a mortgage.

Credit issues are not a deal breaker

If your credit history isn’t spotless, B lenders are more likely to consider your application. They understand that life events like job loss or medical emergencies can impact credit scores and are willing to look beyond the numbers.

Shorter mortgage terms

B lenders often offer shorter mortgage terms, usually 1 to 3 years. For some clients, I suggest the B lender as part of a “stepping stone” approach. This can be beneficial if your financial situation will be improving in the future and our game plan is to switch you to an A lender once your term is up.

Who is a good match for a B lender mortgage?

Property investors

I have a number of real estate investor clients who’ve run up against the restrictive qualification criteria at their mainstream lender when looking to add properties to their portfolio. So, if you’re looking to invest in property and need flexible financing options, B lenders can provide the necessary funds without the rigid requirements of traditional banks. If you’re an investor who needs access to funds for multiple properties, especially if they’re in a holdco, B lenders can be a go-to solution.

Borrowers with non-traditional income

Freelancers, gig workers, and contract employees often face challenges with mainstream mortgage approvals. Similarly, if you need to show that you’re receiving supplemental income from a family member living with you, or need to add a guarantor’s income to your application but don’t want to add them to the title of your property, A lenders typically aren’t going to be helpful. B lenders cater to these situations, offering mortgage solutions that align with your financial reality.

Borrowers who are self-employed

Self-employed individuals often have more tax write-offs, which can make their reported income appear lower than it actually is. Unlike traditional banks, B lenders are more flexible with their lending criteria, understanding that self-employed borrowers may have irregular income or less conventional financial documentation. This flexibility allows B lenders to consider a broader range of income sources and provide mortgage solutions tailored to the unique financial needs of self-employed individuals.

New Canadians

If you’re new to Canada and haven’t established a strong credit history yet, or you require more flexible ratios, a B lender can offer a pathway to home ownership. While there are “New to Canada” programs at all the mainstream lenders, these don’t have any flexibility in qualification criteria, which may be needed for you to initially get approved for your home purchase.

Individuals with recent bankruptcy or consumer proposals

Mainstream lenders aren’t likely to approve your mortgage application if you have a recent bankruptcy or consumer proposal. It takes time to rebuild your credit and your financial profile to fit their criteria. In the meantime, B lenders are more flexible. They provide options to those looking to rebuild their financial lives. It’s very common for me to have conversations with clients around how to use a B lender to get what they need, until they can move to an A lender.

Points to keep in mind

Higher interest rates

To compensate for their greater flexibility, B lenders generally charge higher interest rates compared to mainstream lenders. These rates are not typically advertised because it’s not a one-size-fits-all approach. The rate for your mortgage are determined on a case-by-case basis, tailored to the specific details of your financial situation. Just a reminder: we’re not talking private lender rates. Alternative lenders are typically around 1-2 percentage points above A lenders.

Fees

Normally, B lenders charge a 1% commitment fee or lender fee up front. This is somewhat flexible – the fee can be dropped – but then the interest rate is raised instead, so it’s really a wash. As well, you can expect to cover the cost of an independent appraisal, which is approximately $400-500. Some mortgage brokers also charge a broker fee when arranging a B mortgage. I typically don’t, but if it’s necessary, I discuss it with you up front.

Higher down payment

You can expect B lenders to require you to come up with a larger down payment. Since they are less restrictive in evaluating your income and credit, they offset that with a greater reliance on the equity in your property. In large urban areas where properties sell quickly and easily, they might be looking for a down payment of 20%. In smaller communities or with properties that are more unique, they might want to see a down payment of 25% or more.

Strict payment terms

B lenders can be tougher if you miss a payment. Communication is key — if you experience financial problems, you need to proactively talk to your lender to avoid complications.

Brokers need to know their business

Not all mortgage advisors have experience working with B lenders. Since there are almost as many B lenders as A lenders in Canada, it’s important to find someone who specializes in B lender mortgages to ensure you get the best terms and guidance for your situation.

B lender mortgage can be a strategic step towards home ownership

B lender mortgages in Canada offer a flexible and accessible alternative for those who may not fit the traditional mold required by A lenders. Whether you’re self-employed, have a less-than-perfect credit history, or need a lender to use a different measure of your financial situation, B lenders can provide a viable solution. As always, I recommend working with a mortgage pro who can help you make informed choices, ensuring that your mortgage aligns with your long-term financial goals.

Feel free to get in touch with me to explore your options. I’d be pleased to help you come up with your mortgage game plan!

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B lender specialist in Toronto – B lender mortgage broker