Subprime Lending - What Is a B Lender Mortgage?
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Mortgage Borrowing in Canada
Did you know that mortgage borrowing reached record highs in 2020 with households adding almost $108 billion in mortgage debt? Higher debts equate to lower credit scores and less approval odds.
If you are looking into buying a new home or want to refinance your current mortgage, consider B lenders.
A B lender mortgage approval is more lenient than the traditional option and can help households qualify for financing while they are in debt.
Learn more about applying for a B lender mortgage.
What are B lenders?
If your bank is saying no to a mortgage loan, B lenders are an alternative method to receiving funds. Your bank, an A lender, is the conventional way of doing things but they have strict guidelines and rules regarding their borrowing requirements.
To qualify for an A lender loan, you'll need to be a low-risk borrower and fall into government policies.
B lenders refer to lending institutions and banks that help when your bank won't. Compared to A lenders, B lenders have more lenient approval guidelines.
This is a common lending approach for the following circumstances:
- You have damaged or bad credit
- You filed for bankruptcy or a consumer proposal
- Self-employed individuals
- You need short-term financing
- You need home equity access to pay off bills
- You are purchasing a home
The types of income used to qualify for a B lender mortgage are more flexible. For example, if you claim low income on your annual tax returns, this could be the best path to approval.
Another one of the main differences between A lenders and B lenders is how much money they will lend to you.
Bank A lending institutes can provide up to 95% of your property's value while sub-prime lenders will only finance up to 80% of the property value or home purchase price.
B Lender Mortgage Pros and Cons
New homebuyers that consider a Sub-Prime B Lender do so because they have something standing in the way that disqualifies them for a loan with their bank.
Although there are a lot of benefits in choosing a B lender mortgage, there are drawbacks that are important to know as well.
Pro: A Clear Solution
The obvious pro of a B lender mortgage is that it offers a clear solution to homebuyers looking for mortgage financing. These individuals don't qualify through their traditional bank for any of the following reasons:
- Nature of income
- Previous mortgage arrears
- High debt service ratios
- Bruised credit
- Non-traditional sources of down payments
If you have any of these issues, consider B lending for mortgage financing.
Con: A Higher Price Tag
In the grand scheme of things, opting for a B lender mortgage is more expensive. This is because interest rates and closing costs are higher because of the leniency in approval.
However, since these options are typically short or mid-term solutions, the trade-off is worth it for a lot of homeowners.
Pro: Shorter Terms
A lot of homebuyers are willing to pay a higher price tag because they can pay off a B lender mortgage quicker. These are funded on 1 to 3-year terms instead of the general 5-year term.
This allows the borrower more flexibility to improve their financial circumstances and their credit score. The borrower can then transition back into traditional lending sources without facing nonpayment and other penalties.
Con: Property Appraisal
Depending on how you take it, a property appraisal when you purchase a home might not seem like a con. It does, however, tack on closing costs. This is typically a higher cost than others associated with closing in on a home.
On the pro side, new homeowners ensure that the home they are buying is worth the money. Some A lender mortgages require appraisals during the buying process as well.
Pro: More Leniency
B lender mortgages aren't as strict when it comes to qualification guidelines. They allow for higher mortgage affordability and non-conforming sources of income such as:
- Commission
- Bonus
- Part-time employees
- Contract employees
- Business-for-self
The down payment funds can also come from these various sources.
Con: Minimum Down Payment
Not all types of mortgages require a minimum 20% down payment when purchasing a home, but a B lender mortgage does. This can affect homebuyers that expect to only put down only 5%, 10%, or 15%.
Because average home prices in major provinces are increasing, a 20% down payment might be necessary for even A lender mortgages. This makes the con less drastic than it was in years past.
B lenders only finance up to 80% of your home's value or purchase price, which is why you need to come up with a 20% down payment.
Are you considering a B lender mortgage?
Talk to one of our mortgage specialists to find out if this type of loan is right for you!
Are you considering a B lender mortgage?
Talk to one of our mortgage specialists to find out if this type of loan is right for you!
How Much Are B Lender Mortgage Rates in Canada?
Now that you know B lender mortgages require more money, you might be wondering what the rates look like. We'll break down the cost components of choosing an alternative lender mortgage.
Interest Rate
The best Sub-Prime Lender in Canada will offer affordable interest rates. These rates aren't as hard as conventional methods of lending and instead are set on a case-by-case basis.
A B lender mortgage company will choose rates based on the following information:
- Credit score
- Elements in your credit report
- Type of income
- Stability of income
The application you fill out will be evaluated for risk. Each lender differs in how much weight they assign to the above factors.
Monthly Payment
Your interest rate will affect your monthly payment amount. This is one of the most important costs to consider when choosing a mortgage lender. You'll want to ensure you can comfortably make your payments each month.
Mortgage rates might increase so you'll want to give yourself some wiggle room when you choose. If you don't make your monthly payments, you risk defaulting on your mortgage.
Lender Fee
On top of the mortgage, B lenders will charge a "commitment fee" or lender fee. This is usually 1% of the mortgage amount but you can ask for lower fee options.
If you prefer not to pay 1% at closing time, the lender might reduce or eliminate the fee. Doing this will slightly increase the interest rate.
- Credit score
- Elements in your credit report
- Type of income
- Stability of income
The application you fill out will be evaluated for risk. Each lender differs in how much weight they assign to the above factors.
Brokerage Fee
A B lender mortgage broker in Canada will also charge you a fee. This amount ranges from 1% to 2% of the mortgage price.
The decision is up to the brokerage and might depend on the complexity of your situation. The mortgage broker will tell you upfront how much this charge will be.
Prepayment Penalty
A B money lender might penalize you for paying your mortgage off early. They can also charge prepayment penalties if you break your mortgage before the term finishes.
Prepayment penalty costs are high so it's important to learn about whether or not your lender has this policy.
B Lender Mortgage Requirements
Although B lenders are more lenient with their requirements, they will still need to see certain documents when you apply.
Most B lenders require the same mortgage lending documents as A lenders. They get more creative by taking a common-sense approach to income documents or credit scores.
Traditional financial institutions, or A lenders, will require a minimum credit score of 680 to qualify for a mortgage loan. B lenders will consider your score and the value of your collateral.
B lenders will look through bank statements to verify cash flow that won't show up on tax returns. The main requirement is that you have a large enough down payment, 20% or more of the purchase price.
In certain areas, you might be asked to put more down on a home.
Although requirements are subject to change on a case-by-case basis, these are some general guidelines for B lender mortgages:
- Minimum beacon scores 500
- Previous bankruptcy: as little as 1 day discharged
- Debt services ratios average 45/50 higher on exception
Existing homeowners might also qualify with B lenders at competitive interest rates. You can gain access to your home's built-up equity or renew your mortgage with B lenders. This allows you to pay off debts and improve your finances.
If you don't qualify for a B lender mortgage, you have other options. Private mortgage lending might be helpful or you can receive a second mortgage if you currently hold one with a Schedule A bank.
B Lender Mortgage vs. Private Mortgage
When a B lender also turns you down for a mortgage, you can look into private lenders also known as unregulated lenders or C lenders. Private lenders might be businesses, family members, or friends specializing in lending.
These are individual lenders that are not subject to the same regulations as credit unions and banks. For example, B lenders fund mortgages through non-traditional banks and lending sources but are still governed by B-20 guidelines.
Unregulated lenders aren't required to test their mortgage applicants and may offer higher qualification rates. Getting approved for a mortgage through a private lender might be easier than approval from A or B lenders.
When considering these lenders, ask these five questions before signing a mortgage agreement:
- How high is the interest rate?
- What is the monthly mortgage amount?
- s there a prepayment penalty?
- Is there a prepayment privilege?
- Will it cost you to get out of the mortgage altogether?
It's important to know exactly what the fine print says before signing anything. The agreement should include answers to these questions. Always ask more questions if you don't understand your agreement.
Every lender has its own terms and conditions for mortgage agreements. Some lenders, including B and private lenders, stay consistent with A lenders while others have their own fine print.
B Lenders vs. Monoline Lenders
There are different types of B lenders, one of which is known as a monoline lender. These lenders provide lending solutions but are not usually a bank. They don't have typical bank deposit accounts or branches.
Monoline lenders include the following:
- Publicly-traded corporations
- Mortgage investment corporations (MICs)
- Non-publicly traded corporations
Every lender is different but some offer comparable rates to A lenders. Monoline lenders, because they are B lenders, set their own approval criteria. Look into the terms and conditions of the loan carefully before accepting.
You'll have the option of working with monoline lenders directly or through a mortgage broker.
B Lenders for Current Homeowners
If you are already a homeowner and don't need to find a B lender mortgage, you can still use B lenders to your advantage.
Home equity loans allow you to take out a second mortgage on your property, replace a primary mortgage, or cash-out refinances. Home equity loans can help you reorganize your finances and better your credit score.
You have to have enough equity in your home to qualify for a home equity loan. Use our free home equity calculator to see how much money you are able to receive.
This method of debt consolidation gets rid of high-interest rates to make it easier to pay off debt on time.
Some homeowners that have their finances in order choose to improve their homes and boost the home's equity with this type of loan.
If you opted for a B lender mortgage previously, you might later benefit from a home equity loan that can help you with the high-interest rates you've accumulated.
Are you a current homeowner looking for a new mortgage?
Consider using a B lender! Consult with one of our professionals today and learn about all of your options.
Are you a current homeowner looking for a new mortgage?
Consider using a B lender! Consult with one of our professionals today and learn about all of your options.
Work With LendToday
Now that you know the ins and outs of B lending, you can make a choice about which mortgage option is best. If you've decided that a B lender mortgage is right for you, work with LendToday!
Our team of experts helps clients financially when traditional lending is no longer a possible route. If you get turned down by a bank or struggle to keep up with financial obligations, we can help.
Are you ready to finalize a home purchase, refinance a current loan, or take out a second mortgage? Apply today or schedule a 15-minute consultation call to learn more about our services.