If you’re looking to buy a home this year, you’ve likely noticed how expensive housing is. Home prices are through the roof, mortgage interest rates are still elevated, and passing the mortgage stress test can seem like trying to pass your final exam for a Ph.D.
So, what can you do if you’re having nothing but bad luck trying to get a mortgage? Answer: Look into B lender mortgages.
Key Points
- A mortgage from a B lender is a home loan offered by alternative lenders to borrowers who don’t meet traditional bank criteria, often due to lower credit scores, low incomes, or higher debt levels.
- While more accessible, B lender mortgages come with higher interest rates, smaller loan amounts, and higher down payment requirements than loans offered by A lenders.
- Several B lender mortgage providers are available to Canadians, including Pine, MCAP, and Home Trust, among others.
What Is A B Lender Mortgage?
B lenders are individuals or companies that offer financing to borrowers who are unable to qualify for credit products with traditional lenders, like big banks. Their lending criteria are much less strict compared to the requirements of conventional lenders.
| Short answer: B lender mortgages are home loans offered by lenders in the subprime lending market. However, keep in mind that many B lenders are regulated mortgage finance companies/trust companies, and not simply private lenders. |
Mortgage Investment Corporations (MICs) vs. Individual Private Lenders
The difference between the private lenders and MICs comes down to the investors.
| MICs: Mortgage Investment Corporations are entities that let investors invest in a mortgage pool by contributing to a mutual fund through the acquisition of MIC shares. While individual private lenders work with just one borrower at a time. MIC funds are pooled amongst several investors. Private Lenders: For a private mortgage, funds come from only one investor who provides the loan. |
Learn more: Private Mortgage Lenders In Canada
B Lenders Vs. A Lenders
A lenders and B lenders differ in several ways, including the following.
| B Lenders | A Lenders | |
| Loan Criteria | — Less stringent — Bad credit accepted — Lower income requirements | — More stringent — Good credit and higher income required — Lower debt-to-income ratios needed |
| Loan Products | More specialized program options, like programs for bad credit borrowers and newcomers | Traditional mortgage products available |
| Interest Rates | Higher rates than A lenders | Lower rates than B lenders |
Loan Criteria
B lenders are not regulated as strictly as A lenders, so they can exercise more flexibility when it comes to who they choose to work with. That’s why it’s usually easier to get approved for a mortgage with a B lender than with conventional lenders.
However, down payment requirements may be higher to offset the lender’s risk. For instance, it’s not uncommon for B lenders to require a down payment of more than 20%.
Wider Range Of Loan Products
Many B lenders offer standard loan products that traditional lenders offer, such as fixed-rate mortgages. However, they often provide several other personalized loan products that allow them to tailor financing solutions for subprime borrowers.
For instance, B lenders are known to offer mortgages to the self-employed, newcomers to Canada, and those with subprime credit.
Higher Interest Rates
B lenders typically charge higher interest rates on their mortgages as another way to minimize their risk. There may also be additional fees to pay on B lender mortgages, which can add additional costs to the loan amount.
Why Should You Apply For A Mortgage With A B Lender?
There are several reasons why you should work with a B lender when applying for a mortgage:
No Stress Test
Traditional lenders require borrowers to pass a mortgage stress test before a loan application is approved to determine whether you’d still be able to make your mortgage payments if interest rates increase in the near future.
B lenders often don’t require this test as part of the application process, making it easier for subprime borrowers to secure a mortgage.
| Note: Be aware that many B-lenders that are federally regulated still may apply similar underwriting or stress test type criteria. The key is they may use different metrics. For example, some credit unions or provincial lenders may avoid the full OSFI stress-test. |
Less Stringent Income & Debt Ratio Requirements
Traditional lenders require a strong income from steady employment and a manageable debt level for loan approval. If you don’t have either one of these, you’ll have better odds of loan approval if you apply with a B lender.
| What’s A Debt Service Ratio? A debt service ratio shows the share of your gross income used to pay existing debts. It’s calculated by dividing your total monthly debt payments by your pre-tax income. A lenders typically don’t allow debt service ratios higher than 44%. Some B lenders, on the other hand may accept debt service ratios slightly higher. |
Lower Credit Score Requirements
Good credit is one of the more important factors that determine your ability to secure a mortgage. Luckily, B lenders work with borrowers with credit scores that fall under this range.
If your credit score is weak, you may be able to secure a mortgage from a B lender if other aspects of your financial life are healthy, or if you’re able to come up with a sizable down payment.
| Not Sure What Your Credit Score Is? If you don’t know what your credit score is, check it for free using Loans Canada’s Compare Hub platform. |
More Likely To Accept Self-Employment
Getting approved for a mortgage as a self-employed individual can be tough compared to a full-time, permanently employed worker. B lenders make it much easier for self-employed individuals to get approved by using alternative forms of income proof, such as bank statements, invoices, vendor contracts, and so forth.
Learn more: What Are Self-Employed Mortgages?
Things To Consider When Applying For A B Lender Mortgage
Before applying for a mortgage with a B lender, consider the following drawbacks:
- Higher Interest Rates: Lenders will consider you high-risk if you have low credit, non-traditional income, and a high debt load. To offset this risk, B lenders charge higher interest, which will make your mortgage more expensive.
- Higher Fees: B lender mortgages also tend to come with additional lender fees, which can cost up to 3% of the loan amount.
- Higher Down Payment: Another way that B lenders reduce their risk is by requiring a higher down payment amount. While you may be able to secure a traditional mortgage with as little as 5%, B lender mortgages often require down payments upwards of 20% or more.
Can You Get A Mortgage As A Newcomer?
Unless you’ve been in Canada for more than two years or are considered an exception, you won’t be able to buy a home as a newcomer to Canada.
To alleviate the housing crisis, the Canadian government recently passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act, which prohibits newcomers from buying a home for two years, with limited exceptions. The idea behind this ban is to help make homes more affordable to Canadians and those who are already living in Canada.
If you are an exception to this rule or have just recently passed the two-year mark, you can buy a house. However, you’ll want to apply for a mortgage that is tailored to those who are relatively new to the country.
Where Can You Get A Mortgage As A Newcomer?
Banks and B lenders alike offer specialized mortgages designed specifically for those who are new to Canada. These programs are offered to newcomers with limited credit history in Canada but meet the minimum income threshold to afford monthly mortgage payments.
Alternatively, B lenders also offer mortgages for newcomers that are typically easier to qualify for. As noted above, you may find the higher TDS ratio and lower credit requirements more suitable for you if your income and debt load aren’t strong enough to qualify for a bank loan.
| Is Your Credit Score Holding You Back? Unfortunately, newcomers to Canada cannot take their credit profile with them from back home. If you’re new to the country, you’ll have to start building a credit history from scratch. But without good credit, accessing loan products like mortgages can prove to be very difficult, if not impossible. To get around that, consider using innovative services like Nova Credit. This unique platform helps you send your credit information from your home country to lenders so they can accurately assess your creditworthiness. In turn, you’ll be in a much stronger position to access credit products and start building a healthy credit history. |
Who Are The Best B Lender Mortgage Providers?
A growing number of B lenders are available to Canadians looking for a simpler way to get approved for a mortgage, including the following:
Pine
Pine combines the convenience of a digital mortgage process with the assistance of live mortgage agents to help Canadians get access to the best mortgage products anytime and from anywhere. They will assign a professional mortgage agent to you, who will work behind the scenes to help you get the best mortgage product at the lowest rate possible based on your credentials.
Features:
- Lower Mortgage Rates Than Banks: Depending on your finances and credit profile, you may be able to get a lower mortgage interest rate compared to big banks thanks to Pine’s innovative business model.
- Easy Online Application: Answer a few short questions from your computer, and Pine will guide you through a simple online application journey in less than 10 minutes.
First National
First National is one of the largest non-bank mortgage lenders in Canada, offering residential and commercial mortgages since 1988. The alternative online lender serves all types of borrowers, including those who are unable to qualify for loans from traditional lenders.
Features:
- Multiple Mortgage Types: Choose from a wide range of mortgage products that fall under residential and commercial umbrellas.
- Flexible Payment Plans: A variety of payment frequency options are available, including monthly, semi-monthly, accelerated semi-monthly, weekly, accelerated weekly, bi-weekly, and accelerated bi-weekly.
- Easier Loan Requirements: Approval standards are much more flexible compared to conventional financial institutions and prime lenders.
MCAP
MCAP is an independent mortgage finance company in Canada that specializes in residential, commercial, and development mortgage products. They have been providing financial solutions to Canadians for over 35 years while maintaining the highest standards in the industry.
Features:
- Less Strict Loan Requirements: MCAP helps homebuyers and investors get access to financing that would otherwise be unavailable to them through traditional means.
- Flexible Loan Products: MCAP works with a variety of borrowers and offers flexibility in loan terms to suit every applicant.
Home Trust
Home Trust is a Canadian trust firm that caters to borrowers of all types, including those with non-conventional income and sub-par credit profiles. The company also offers additional services and products, such as credit cards and retail lending.
Features:
- The Classic Mortgage: This product is designed for homeowners who don’t meet standard mortgage lending requirements.
- The Accelerator Mortgage: Borrowers with established credit profiles looking to buy a home or switch their existing mortgage may find this option suitable.
- Online Mortgage Application: The entire mortgage application process can be completed online, and a representative will reach out within two or three business days.
Get A B Lender Mortgage Through A Mortgage Broker
There are many types of B-lenders in Canada, so finding the right one can be difficult. If you don’t have a particular lender in mind or are worried about who you can qualify with, working with a mortgage broker may help. They can help connect you and find offers with multiple lenders based on your finances.
Neo Mortgage
Neo Mortgage offers digital mortgages using innovative technology to help buyers access mortgage products entirely online. The process is quick and easy, and borrowers can get approved for a mortgage with as little as 5% down and flexible loan terms.
Features:
- Competitive Interest Rates: With Neo Mortgage, you can get a competitive rate, which will help you save money in the long run.
- Quick Online Application: Submit an online application from the comfort of your home and get pre-qualified within minutes.
Mortgage Maestro
Mortgage Maestro is an online mortgage brokerage that offers homebuyers and homeowners a simple digital mortgage application and approval experience. The company is made up of a team of expert brokers who work with over 50 trusted lenders to help you find the right mortgage product for you.
Features:
- Unbiased Assistance: The team of brokers at Mortgage Maestro provides unbiased opinions and advice. They don’t work for lenders; instead, they work for you. As such, they’ll put your best interests first so that you can be sure that you’re getting the most affordable mortgage based on your financial situation.
- Easy Online Application: The entire mortgage application and approval process takes place completely online. You can apply from anywhere you may be without having to visit an agent in person.
- Lowest Rates: Mortgage Maestro will scour their network of lenders to find one that will give you the lowest possible interest rate based on your credentials. This will ensure that your mortgage payments fit well within your budget.
Nesto
nesto is a Canadian online mortgage company that utilizes cutting-edge technology to provide borrowers with a simple and convenient online mortgage application and approval process. The company also employs a team of mortgage experts to ensure you have the guidance needed to make the right mortgage decisions.
nesto is dedicated to ensuring a fully transparent and convenient mortgage process while helping borrowers get the lowest possible mortgage rate.
| New Offer: Take advantage of nesto’s 1% cashback offer (on eligible transactions, up to $13,754). Whether you’re looking to buy a home or refinance, get 1% cash back on the value of your mortgage. |
Features:
- Low Interest Rate Guarantee: nesto will look for the lowest mortgage rates available based on your financial situation to potentially save you thousands of dollars over your loan term. The company guarantees the lowest rate by promising to match or beat any competitive offers.
- Quick Approval & Funding: Thanks to nesto’s innovative technology, the platform can provide approvals and funding as quickly as possible.
- Rate Lock: By getting pre-approved for a mortgage with nesto, you can lock in your quoted rate for up to 150 days. This is the longest lock-in offer currently available in Canada.
Merix
Merix Financial is an alternative lender that provides financing options to borrowers who may not be eligible for mortgages from conventional lenders. In particular, the company offers interest-only mortgages, home loans for newcomers to Canada, mortgages for home improvements, and rental property mortgages, among others.
Features:
- Vast Network Of Lenders: Merix is partnered with several top-rated lenders across Canada to deliver the highest-quality service to clients.
- Use Of Innovative Technology: Merix makes use of cutting-edge technology to ensure borrowers have the most convenient and simple loan application and approval experience online.
- Variety Of Borrowers Served: In addition to prime borrowers, Merix also serves those who may find it difficult to secure a home loan, including the self-employed, those with non-traditional incomes, and bad credit borrowers.
Rocket Mortgage
Rocket Mortgage is a popular mortgage brokerage that recently entered the Canadian marketplace after years of servicing US borrowers. It is a fully digital company that offers competitive interest rates and convenience.
Features:
- Convenient Online Mortgage Process: Apply, get approved, and receive your loan funds entirely online from wherever you are.
- Handy Online Calculators: Estimate your monthly mortgage payment, see how much you can afford in a home purchase, and determine your amortization schedule using Rocket Mortgage’s online calculators.
- Top-Rate Lending Partners: Rocket Mortgage works with dozens of highly-rated Canadian lenders to help you get rates and terms that fit your needs.
B Lender Mortgage Process
Applying for a mortgage from a B lender is relatively straightforward and can typically be done entirely online following these steps:
Step 1: Discuss Your Options
In some cases, you may want to speak with the lender via telephone to discuss the options available to you. In more straightforward cases, you may be able to begin the communication process by answering a few questions online.
Step 2: Gather Your Documents
You will need to supply your lender with a few documents that pertain to your finances, such as bank statements, pay stubs, and statements of debts. The exact documents required may differ from lender to lender and may be based on your specific situation.
Step 3: Get Pre-Approved
Once your application is filled out and you’ve submitted all required documents, your lender will provide a mortgage pre-approval, which will detail the loan amount you may qualify for and your interest rate.
Step 4: Get Final Approval
If your loan application is approved, your lender will begin the underwriting process, and you’ll receive a letter of commitment. You may need to submit additional documents to the lender for your loan to be processed.
Step 5: Sign Your Loan Contract
Once your loan contract is complete, the mortgage will be registered, and the title of the property will be transferred to you. You will need to sign the contract and make your down payment.
Step 6: Mortgage Closing
On your mortgage closing date, you’ll receive your loan funds, and the process will be considered complete.
How To Transition From A B Lender To An A Lender
Eventually, you may want to move to an A lender for your mortgage to keep rates low and secure a larger loan amount. To do this, you’ll need to take some steps and develop some healthy financial habits, like the following:
- Improve Your Credit Score: A lenders require a credit score of 680 or higher. Take time to boost your score, by paying all bills on time and lowering credit card balances.
- Lower Your Debt-to-Income Ratio: Your DTI ratio should not exceed 44% for most A lenders. So, pay down loans, credit cards, and other debts to improve your affordability profile.
- Time Your Renewal Properly: Most B lender mortgages have short terms, often between 1 to 3 years. Use your renewal window to shop around with A lenders, as refinancing early may incur penalties.
- Work With A Mortgage Broker: Mortgage brokers can compare A lenders and their products and negotiate lower rates on your behalf. They can also help you prepare your application to meet stricter underwriting standards.
Final Thoughts
B lender mortgages are generally more expensive than traditional mortgages. However, they’re worth it if it means the difference between buying a home and being left out of the housing market. If you don’t meet the stringent qualifications of conventional lenders because of low credit or an inadequate income, you may have some luck getting the mortgage you need from a B lender.
