Not All Lenders Pre-Approve
Please note: The mortgage market is a fast-evolving ever-shifting landscape. ‘B’ lenders are starting to move into the pre-approval space as the line between prime lenders and alternative lenders continues to be blurred. Most alternative lenders do not pre-approve, but an increasing number of them do. My thoughts is over the next 12 to 18 months to stay competitive, most alternative lenders will be pre-approving mortgages.
Imagine hunting for a house, looking through different areas. Finally, you find the perfect home. It feels right, the price is good, and it’s in a great location. Now you start thinking about getting a mortgage. You’re eager to get a mortgage to secure this home quickly. Unfortunately, when you approach your bank, you discover either because of the nature of your income or because of some other financial criteria, the banks, given how strict they are, won’t give you a pre-approval. So you talk to friends, and they suggest you approach Allen Ehlert and discuss getting a mortgage through a ‘B’ lender. When you do, you learn that B lenders don’t pre-approve mortgages like the well-known Big Six Banks.
This process leads to many questions, especially about B lenders. The big banks in Canada have strict rules. They need high credit scores and steady incomes. But, B lenders help people who don’t fit these strict conditions. For those people, B lenders can be a chance to own a home, even when it seems hard.
‘B’ lenders, also known as alternative or subprime lenders, typically do not offer formal pre-approvals in the same manner as traditional ‘A’ lenders (such as major banks and credit unions). This is primarily because ‘B’ lenders often cater to borrowers with less conventional financial situations, such as those with lower credit scores, self-employed individuals with inconsistent income, or those with higher debt levels.
Instead of formal pre-approvals, ‘B’ lenders often provide conditional approvals or rate holds. These are based on an initial assessment of the borrower’s financial situation and credit profile but are not as firm as the pre-approvals provided by ‘A’ lenders. The conditions typically include a more thorough review of the borrower’s financial documents and the property being purchased.
However, practices can vary among different ‘B’ lenders, and some may offer more formal pre-approval processes under specific circumstances. It’s advisable to check with individual ‘B’ lenders to understand their specific offerings and processes.
Key Takeaways
Understanding B Lenders in Canada
In Canada, B Lenders are important in the mortgage market. They help people who don’t fit traditional banks’ rules. Companies like MCAP, First National, Merix, and RFA offer unique mortgage options. This gives people more choices and flexibility. Currently, B Lenders hold a 12% share of all Canadian mortgages.
What Are B Lenders?
B Lenders are mortgage companies that serve a special group. They help those with lower credit scores, unconventional income, or who work for themselves. Offering good rates, they also provide unique mortgages like interest-only or adjustable rate options. This makes B Lenders a great option for many.
Difference Between A Lenders and B Lenders
A Lenders and B Lenders have different rules and who they help. Big banks, like A Lenders, need high credit, stable income, and a solid financial past. B Lenders, though, are more flexible. They reach out to those turned down by big banks, with solutions that fit their needs. Even though A Lenders offer security and lower rates, B Lenders make it possible for more people to get a mortgage by being adaptable.
Why Consider B Lenders for Your Mortgage?
B lenders are a smart choice if you have a low credit score or earn money through commissions or are self-employed. They offer mortgages that fit your unique situation. This makes it easier to get a mortgage when big banks might say no.
Advantages of B Lenders
B lenders stand out from others because they are more flexible with credit scores. If you’re looking for a mortgage with bad credit, they might be your best bet. They also look at your application individually. This means they can consider factors that big banks wouldn’t.
Being private companies allows B lenders to be different. They can work with various types of income. If your income changes a lot, they could offer you an interest-only mortgage or a loan that doesn’t last as long.
Flexibility and Accommodation
Flexibility is a key strength of B lenders. They understand that not everyone earns a steady paycheck. For self-employed or those on commission, this is a big win. Taking Merix Financial as an example, they create finance options to suit different situations.
Pre-Approval B Lenders: Why They Don’t Offer It
In Canada, B lenders often work with clients who are not meeting traditional loan standards. This includes folks with ups and downs in their earnings or those with poor credit scores. They do not usually provide pre-approvals, unlike CMHC-insured mortgage lenders. They prefer looking at each mortgage application very carefully case-by-case.
The way B lenders work is quite different from A lenders and CMHC-insured providers. They focus more on a person’s financial situation, like how much debt they have compared to their income. This lets them offer home loans to a broader group of people. But, this approach doesn’t match with the strict pre-approval system you see with A lenders.
B lenders don’t do pre-approvals because each client is unique when you look at things like their credit scores or how much they make. The standard pre-approval process would not really help these varied clients. So, they prefer to take the extra time to find a mortgage solution that truly works for everyone. This often leads to mortgages that are not insured.
Alternative Mortgage Options with B Lenders
In Canada, B Lenders provide different mortgage options for various needs, especially for those struggling with traditional loans. These options offer flexibility and specific solutions for different situations.
Interest-Only Mortgages
Interest-only mortgages are available from B lenders like MERIX Financial. With these, you pay only the interest for a set time. This lowers your monthly costs, helping those with tight budgets. It’s great if you’re expecting more money soon or want to invest your savings.
Adjustable Rate Mortgages
Adjustable rate mortgages (ARMs) come with interest rates that may change over time. They start with a lower interest rate than fixed-rate mortgages, meaning your first payments might be smaller. ARMs work well if you think interest rates will go down or if you’re planning to refinance or sell the house before rates adjust.
Bridge Financing
Bridge financing is for when you need a loan to buy a new home before you’ve sold your current one. It covers the gap between buying and selling. This short-term help is offered by B lenders to keep you from missing new opportunities while waiting to sell.
These options, like interest-only mortgages, ARMs, and bridge financing, are designed to fit certain financial needs. They show how B lenders in Canada are offering important options. Knowing about these choices lets you make the best decision for your situation.
FAQ
Do B Lenders in Canada provide pre-approvals?
Unlike A Lenders, B Lenders in Canada don’t do pre-approvals. They review mortgage requests one at a time. This is helpful for those with different income types or less than perfect credit.
What are B Lenders?
B Lenders are special mortgage lenders in Canada. Examples include MCAP, First National, Merix, and RFA. They offer unique mortgage choices to those who don’t fit the strict rules of A Lenders. This includes people with poor credit or who are self-employed.
What is the difference between A Lenders and B Lenders?
Major banks like RBC, TD, and Scotiabank are A Lenders. They need good credit and steady income. B Lenders have more flexible rules, offering good rates. They help those with less common income types, bad credit, or are self-employed.
What are the advantages of B Lenders?
B Lenders are great for those with bad credit, varied income, or who are self-employed. They have lower requirements and offer unique mortgage plans. This includes interest-only mortgages and loans for shorter periods.
How do B Lenders accommodate financial flexibility?
B Lenders offer options not found at A Lenders. This includes interest-only mortgages and bridge financing. These help when traditional loans are not available.
Why don’t B Lenders offer pre-approvals?
B Lenders look at each application differently. They understand not everyone fits the same mold. They offer custom solutions without the need for pre-approval.
What are interest-only mortgages?
Some B Lenders, like MERIX Financial, offer interest-only mortgages. With such loans, buyers pay only the interest for a period. It’s good for those needing lower monthly payments.
What are adjustable rate mortgages?
B Lenders also offer adjustable rate mortgages. These have changing interest rates. They work well for those who think interest rates may drop in the future.
What is bridge financing?
Bridge financing is a special loan between the sale of a home and buying a new one. B Lenders provide this. It offers funds for the short period.