Complete list of the best B-lenders for mortgages in Canada. Use approvU to shop for low-rate mortgages from B-lenders across Canada.
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“B-Lenders” and “A-Lenders” are commonly used to classify mortgage lenders in Canada. Mortgage lenders differ in the borrower profile they accept for their mortgage solutions.
To qualify for a mortgage with an A-lender, you need a credit score of over 640, clean credit history and a fully-verifiable income. A-Lenders are also referred to as Prime or Traditional Mortgage Lenders. For an example of this lender, your major banks like TD, BMO, Scotia Bank and other mono-and non-bank lenders like MCAP, Radius Financials, and First Financial.
On the other hand, B-Lenders offer specialty mortgage solutions for borrowers who cannot qualify for a mortgage with an A-lender because of their credit profile or income situation. This category is also known as bad-credit mortgage lenders, alternative mortgage lenders, or sub-prime mortgage lenders.
Let’s look at the best B-lenders for a mortgage in Canada, why you should consider mortgages from these lenders, how to get a low rate and more.
Mortgage lenders that will accept non-traditional income sources, low credit scores, poor credit histories, and higher debt-service ratios are generally classified as B-Lenders. Mortgage loans from this set of lenders are designed for borrowers who do not fit a traditional income and credit.
B-Lenders are not required to follow the underwriting guidelines the default insurance providers set, which traditional lenders need.
Prime mortgage lenders like TD Bank, BMO, CIBC, and some Credit Unions must follow the strict underwriting criteria set for their default insurance providers (CMHC, Sangen, or Canada Guaranty). To qualify for these mortgages (prime mortgages), you need an excellent credit repayment history, a high credit score of 600-plus, and a fully-verifiable income.
On the other hand, non-traditional, subprime, or B-mortgage lenders have flexible income and credit qualification criteria. That makes qualifying for their mortgage products easy even with a bad credit history or non-steady income.
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A B-lender will be a suitable alternative if you cannot qualify for a mortgage loan with a traditional lender. Some reasons you may not be eligible for a mortgage with an A-lender like your bank are:
Since B-Lenders are not obliged to comply with the strict mortgage qualification guidelines of Default Insurers like CMHC, Canada Guaranty, and Sangen, they are flexible with their mortgage qualification criteria. Because of this flexibility, B-lenders are often referred to as common-sense lenders.
Lenders have less flexibility in the qualification criteria for high-ratio mortgages than conventional or low-ratio mortgages. When applying for a high-ratio mortgage, your application needs to be approved by both the lender and the default insurance provider.
That is not the case with conventional mortgages. Your application is only reviewed for approval by the lender. An uninsurable mortgage is a conventional mortgage available for an amortization period of up to 30 years.
The extended amortization period will reduce the debt-service ratio stress and your required monthly payment.
A conventional mortgage will allow you to buy a high-value property (properties with a purchase price of $1 million or more). High ratio mortgages restrict property value to a maximum of $999,999.
A conventional mortgage will leave you with a portion of the equity in your home. The equity is your asset and can be converted to cash if you sell the house or borrow against it using a second mortgage, Home Equity Loan, or Home Equity Line Of Credit (HELOC) program.
You’ll be surprised that you can still find competitive bad credit mortgage rates in the market if you search well. B-lenders were offering rates in the low 2.00% at the heart of the COVID-19 debacle.
As you know, the mortgage rate is one of the main criteria for choosing a mortgage lender. Alternative mortgage lenders understand that, and each is trying to win your business with a lower mortgage rate.
More lenders offer conventional mortgage loans than high-ratio mortgages. Most monoline lenders, B-lenders, and mortgage trust companies only offer conventional mortgages. This makes it easier to find the right mortgage for your unique needs at competitive interest rates.
Also, conventional mortgages allow you to afford investment properties and different vacation or secondary homes.
Traditional lenders will offer standard mortgages for first-time buyers or experienced house owners looking to buy a new house or refinance their existing mortgage. Because of the strict qualification criteria, not everyone is a candidate for traditional mortgages.
You may need short-term financing to complete a house flipping project or seek a mortgage to buy your eleventh rental property. It will be tough to qualify for a traditional mortgage with these needs.
Most small business owners and freelancers have difficulties validating their income via traditional methods like Notice of Assessment, audited financing statements, etc.
This makes it hard for these mortgage borrowers to get approved by traditional or prime lenders.
Their only option for a mortgage loan to finance their house purchase is a B-Lender mortgage. B-Lenders use reasonability too.
You will be a good candidate for a B-Lender mortgage if your Gross Debt Service (GDS) ratio is above 39% or your Total Debt Service ratio is above 44%.
These ratios are what are called debt service ratios.
In Canada, B-Lenders will offer debt service ratios of up to 50%/50% TDS/GDS, respectively. Some will even go to 60% debt service ratios if your loan to value ratio is 65% or lower.
A low credit score is also a factor that might inhibit your ability to get approved for a mortgage with a prime lender.
Getting a mortgage with your bank with a credit score of below 620 will be challenging.
Credit scores between 500 and 620 are perfect for a B-Lender mortgage product.
Getting approved for a mortgage with a traditional lender will be challenging if you have an active or recently closed bankruptcy, consumer proposal, collections, or judgment.
If you have missed payments on your debts in the past few months, it may be challenging to qualify for a mortgage loan with an A-Lender. B-Lenders in Canada fill this gap left out by traditional lenders.
That is why it is possible to get approved for a mortgage with bad credit in Canada, thanks to B-Lenders.
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Because B-lenders are willing to take on risks that traditional lenders are unwilling to, they charge a rate premium to compensate for the increased risk.
That is why mortgage rates from a B-lender are often higher than those from traditional lenders.
The good news is that most individuals with bad credit situations or increased debt service ratios know the high rate with a B-Lender.
You are going to a B-Lender to get approved, not really to get a lower mortgage rate.
You should expect to spend approximately 3% to 5% of the loan amount in closing costs for a mortgage from a B-lender.
B-Lenders charge a fee for originating the mortgage; most likely, the mortgage professional representing you may also charge a fee.
These fees could be avoided with an excellent credit character and income capacity.
If you want a long-term mortgage solution, b-Lender’s mortgages will not be the right option.
Alternative mortgages are transitional or short-term solutions. The most common alternative mortgage terms are one-year, two-year, and three-year, with the 1-year fixed rate being the most popular.
Alternative mortgages help you reestablish your credit and financial situation to qualify for a low-rate mortgage with a traditional lender.
An appraisal report is required when seeking a mortgage from a B-Lender. This is usually not the case with a mortgage from an A-Lender.
A mortgage appraisal costs around $500 to $700 to complete. Completing an appraisal does not guarantee to fund the mortgage loan. Your mortgage application can still be declined after you have incurred this cost.
Some of the reasons why your application could be denied upon review of your mortgage would be the property’s condition, lower appraised value or the property’s marketability.
Another drawback of a mortgage from a B-lender is the high required down payment (when buying a property).
The minimum down payment required to qualify for a mortgage with a B-lender is 20% of the home’s price or market value, compared to 5% for a prime mortgage loan.
Property Value | A-Lender | B-Lender | ||
Min. Down Payment Conditions | Examples | Down Payment Conditions | Examples | |
$1 – $500,000 | 5% of the Property Value | Property Value $500,000, Min Required Down Payment = 5% of $500,000 = $25,000 | 20% of the Property Value | Property Value $500,000, Min Required Down Payment = 20% of $500,000 = $100,000 |
$500,001 – $1million | 5% of the first $500,000 and 10% of the balance | Property Value $800,000, Min Required Down Payment = [5% of $500,000 = $25,000] + [10% of $300,000 = $30,000]. Down Payment = $25,000 + $30,000 = $55,000 | 20% of the Property Value | Property Value $800,000, Min Required Down Payment = 20% of $800,000 = $160,000 |
Over $1million | 20% of the Property Value | Property Value $1,500,000, Min Required Down Payment = 20% of $,1500,000 = $300,000 | 20% of the Property Value | Property Value $1,500,000, Min Required Down Payment = 20% of $,1500,000 = $300,000 |
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Most B-lenders prefer to finance mortgages for properties in major urban areas and urban locations with active real estate markets. Properties in these locations are easy to sell in case the mortgage forecloses.
Properties in rural areas can still be financed with alternative mortgages, but they will be at low loan-to-value ratios. You should often look at a 65% loan to value ratio.
A B-Lender for a mortgage may be an excellent option for you if your credit and income profiles do not fit the approval guidelines of traditional or prime mortgage lenders. Without alternative mortgage lenders, about a third of homeowners in Canada would have been left out of the housing market. That’s huge. It means not being able to accomplish their homeownership goals.
Suppose you have been turned down for a mortgage by your bank or other prime lenders because of low income, poor credit, non-conformable income, property type, or property type. In that case, you should consider B-Lending solutions for your mortgage.
Mortgages from B-lenders are not expensive as they used to be. Their rates are competitive, almost coming down to rates offered by Prime lenders, even though they are taking more risk given the type of clients they entertain.
Some B-lenders have interest-only or teaser rates solutions, which can be good if they have some financial challenges in keeping up with required monthly payments.
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