The ABC’s of Private and B-lending
When it comes to securing a mortgage, most of us might think big banks are the only option. But what happens if those household-name financial institutions turn down your mortgage application?
The good news is dreams of home ownership, refinancing and/or debt consolidation don’t have to be put on hold. B-lending and private lending may be options when prime lending isn’t.
What is B-lending and Private Lending?
B-lending and private lending are alternative sources of mortgage financing for people who have bruised credit, or are purchasing or renewing a mortgage on a property that’s not in a prime location or may be designated mixed-use. B-lenders are major institutional players in the mortgage industry. They’re generally more forgiving of poor credit, approving mortgages for one- to three-year terms.
“If you don’t fit into A- or prime lending, we look to B-lending,” says Vern Bovell, mortgage agent with mortgages.ca. “It takes a short time for your credit score to take a hit but it takes a long time to bring it back up. If you have bruised credit, it takes one to two years to rebuild, and hopefully by then, we can put the client back into prime lending.”
Private lenders are individuals or mortgage investment companies who lend money based on the property, not the client. So if a person’s job status is in flux, it’s not a consideration for approval. “They want to know the condition of the property, the location of the property and equity on the property,” Bovell explains. “The more equity you have, the more likely you have a deal.”
Like B-lending, private lending is only temporary. Terms are typically one year. Conditions of a private mortgage include a fee for the loan, payments each month, plus interest at rates that are slightly higher than prime rates. That one-year private mortgage ultimately buys a client time to either improve their income status or sell the property, Bovell notes. After that, the loan is paid back and the homeowner ideally moves back to the prime lending space.
Who can apply for B-lending and Private Lending?
Candidates for these mortgages include borrowers whose credit rating has been affected by a previous bankruptcy or consumer proposal, or missed or late credit card and loan payments. Those with “unprovable income” would also be eligible for mortgages from alternative lenders. That includes people who are self-employed with a lot of write-offs, in the early years of their startup and lack a long enough income history for approval, and those earning lower incomes or who are often paid in cash.
The best way to determine which lender is best for you, however, is to connect with a qualified mortgage agent. “When certain criteria aren’t met, a client won’t qualify for prime lending,” Bovell says. “But I can have a conversation with alternative lenders who may provide a mortgage and that’s a definite benefit for borrowers.”