What options do you have if you have been declined?
First Steps –
Talk to an experienced mortgage broker – here’s why.
The first step is to understand the challenges behind the mortgage file. A skilled broker will isolate what makes the file unique, the strengths and weaknesses of the application and then determine the most effective way to present the file.
A tip from Kirkwood & Brennan
A private or B mortgage can sometimes be used to reposition a file in order to qualify with a major bank.
Once we understand the mortgage file, the good, and the bad, we run a detailed analysis to see if the file fits with any of Canada’s major “A” (think best rates) lenders. We work with lenders to see if we can restructure the file to find solutions.
If the file still does not fit with “A” lenders the next solution is looking at “B” Lenders.
B lenders are major financial institutions like Equitable Bank, B2B, Home Trust and many Credit Unions have B lending programs. B lenders have greater flexibility in their guidelines and ability to use income. They have a larger toolbox when it comes to lending and can be a great solution.
Often a B lender is a temporary solution. We place a client with a B lender for 12 months while we help the client strengthen their application. Once the client fits with an A lender we help them move their mortgage to the best rates and product.
What to expect with a B lender?
B lenders typically charge higher interest rates and fees. You can expect rates roughly 1% higher than bank rates and fees around 1%. These lenders price the financing based on the risk; stronger files typically see better rates than weaker files.
B lenders operate very similarly to major banks, they require you work with a lawyer or notary to complete financing and often require appraisals.
If you do not fit with a B lender?
If a B lender is not able to help you there are still options. The final solution is known as private lending.
Private Mortgage Lending
If you are told “No” by the banks
As lending rules change and qualifying for a mortgage has become stricter, it has become harder to qualify for a mortgage. Over the last 10 years, the government has tightened lending requirements, as a result many borrowers are finding they may not qualify for a loan with a major bank or credit union. If you cannot secure traditional financing, you may find success borrowing money from a private individual or organization, where lending is more flexible.
Private Lending Explained
Private lending is typically a short-term loan secured by real estate. The terms are usually about 6 to 12 months and often interest only. Private lending is more expensive than traditional financing, typically private lending is a temporary solution and an exit strategy is crucial.
Getting Qualified with Private Mortgage Lenders
Private lenders prioritize equity over credit and income.
When applying for a private loan the most important aspect is the property which the financing will be secured on. Lenders review the size of the loan relative to the value of the property; this is also referred to as the LTV or loan to value. The LTV is a lenders primary concern, income and credit are looked at as a secondary aspect to the file. Private lenders generally want to understand how the borrower will make their payments and pay off the loan but do not require detailed financial analysis.
Paying off a Private Mortgage
Private lending is expensive, and it is important to make sure you have a plan to pay off the loan. A strong plan or “exit strategy” will result in lower interest rates and fees so it is important to work with your broker to develop a flexible exit strategy.
A few examples of exit strategies –
- Improving credit or income in order to qualify with an institutional lender
- Selling the property or selling assets
- Inheritance or an injury settlement
- Having a family member co-sign with a major bank or credit union
- “B” Lending or Alternative Bank Lenders
- If you need advice on private lending we are here to help.