There are three types of major mortgage lenders in Canada, which include traditional (chartered banks and mortgage houses), sub-prime (B-Lenders), and private lenders.
A traditional mortgage source basically focuses on clients who possess good credit and jobs and are buying real estate under the traditional guidelines. However, not everybody qualifies for a mortgage under the traditional guidelines and these potential buyers often seek financing help from a subprime or alternative non-conforming lender. Sub-prime lending basically means lending to the riskiest homebuyers due to poor credit or a history of late or missed payments.
In general, a subprime lender won’t provide a client with a high-ratio mortgage. For example, you’ll probably need to have a down payment of at least 20 percent of the property’s purchase price. In addition, a subprime lender will typically charge from one to three percent more over traditional interest rates and will prefer to offer a shorter-term mortgage. Subprime lenders are often seen as an ideal alternative to homebuyers who have poor credit. Some borrowers dig themselves into a financial hole and can’t dig out of it unless they can refinance their property and use the equity from it to help pay off their debt.
When applying for a mortgage or loan with a sub-prime lender, there are several guidelines and tidbits of information you should know. For example, the property can be a rental or owner occupied, but it generally needs to have fewer than four units. The real estate needs to be in a marketable urban area and the equity minimum or down payment should be at least 20 percent. The terms of the loan can be as short as one year, but the interest rate will typically be one to three percent higher than the standard rate. There are usually only fixed mortgage options available, with no variable terms being provided. Also, your current mortgage can’t be in default. While the above information can be used as a guideline, it isn’t written in stone. All loans are unique and are treated differently.
The main thing you should be asking yourself is if the loan makes sense for your current situation. This is where an experienced team of mortgage professionals such as MortgageMeister.com can help. We’ll be able to thoroughly study all of your options and assist in helping you make the right choice for your unique needs and situation. Unfortunately, homebuyers with bad credit will typically pay a higher interest rate than somebody with excellent credit because they’re seen as a greater risk. However, at MortgageMeister.com, we aim to find the best options for your loan and can help you improve your credit rating quickly in order to get you back into a traditional loan upon renewal.
Please feel free to speak with one of our mortgage specialists to discuss the options of a subprime loan or other alternative lending programs. At MortgageMeister.com, our dedicated team of advisers and specialists will work hand in hand with you to help you find a mortgage for a new property, or to remortgage an existing home, through any of the funding avenues mentioned above.