When traditional lenders (such as banks or credit unions) deny mortgage financing, it can be easy to feel discouraged. However, there is always an alternative option. The alternative options commonly include Alternative-A, B lenders, and private lenders. These lenders come in the following classifications:

Alt-A Lenders consist of banks, trust companies, and monoline lenders. These are large institutional lenders regulated both provincially and federally but have products that may speak to consumers who require broader qualifying criteria to obtain a mortgage.

B Lenders are similar to Alt-A lenders; they consist of banks, trust companies, and monoline lenders and are regulated. They offer better lending policies than A or Alt-A lenders.

MICs (Mortgage Investment Companies) are similar to Alt-A lenders but are organized under the Income Tax Act. They consist of an incorporated lending company comprising a group of individual shareholder investors who pool their money to lend for mortgages. These lenders follow individual qualifying lending criteria but tend to operate with an even broader qualifying regime.

Private Lenders are typically individual investors who lend their funds, but they can sometimes also be companies formed specifically to lend money for mortgages that carry a higher risk of default relative to a borrower’s situation. These types of lenders are generally unregulated and tend to cater to individuals with a higher risk profile.

All the classifications noted above consider risk when pricing mortgage products. As a result, this will generally lead to higher costs for the borrower, often 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 if the lender does not renew, or I cannot afford this alternative option much longer?

If you are ready to proceed with an alternative mortgage due to a weaker credit score, or if you don’t want to wait until you can qualify with a traditional lender, here are some additional questions to ask while reviewing an alternative mortgage product:

• How high is the interest rate? What are the involved fees, and are they paid from the proceeds, added to the balance, or paid out of pocket?
• What is the penalty for missed mortgage payments? How is it calculated? What is the cost to exit the mortgage altogether?
• Is there a prepayment privilege? For instance, can you avoid penalties by making higher mortgage payments once a month?
• What is the amount of each monthly mortgage payment?
• What happens at the end of the term? Is renewal an option, and what are the renewal costs if applicable?
• What does the fine print entail?

When it comes to the alternative lending space, things can get complex. Contact your mortgage expert today if you’re considering an alternative lender, and I can help you source out various mortgage products, as well as review the rates and terms to ensure it is the best fit.