As many people are aware, three main types of lenders offer mortgage solutions. By default, most people strive to get their mortgage with an A lender, but the B and C lenders do offer value to those who need a suitable mortgage solution. Below is a breakdown of each:
A Lenders – Although there are many alternative A lenders in this space, these lenders are known to most as “the banks”. The main proposition of A lenders is that they offer the best rates at any given time and in any given market. These lenders are looking for the best applicants whose borrowing profiles are polished because the risk tolerance of this lending category is low. Due to the lower risk tolerance, they are “stricter” in their approval guidelines when it comes to the overall strength of the applicant/s and their ability to sustain the mortgage payments. Due to their strict policy on qualifying, these lenders also have access to default insurance which ultimately allows for borrowers to make purchases with as low as 5%.
Bottom line: best rates, relatively more difficult to qualify – considered to offer long-term mortgage solutions
B Lender – Most people attach a negative sentiment to this category of lenders, which often stems from the spread of misinformation. B lenders offer a more risk-tolerant solution to their clients in exchange for a reasonably higher interest rate. These lenders have favorable approval guidelines around lower credit scores, income, and higher debt servicing thresholds. Due to their qualifying approach, they are unable to obtain default insurance, and thus, applicants typically require a minimum down payment of 20%.
Bottom line: Easier to qualify, qualify for larger mortgages, requires 20% down payment, relatively higher interest rates – considered to offer short-to-long term mortgage solutions
C Lenders – Most people know of these lenders as private lenders. These lenders have the most favorable lending guidelines when it comes to credit and income. In fact, the main priority of these lenders is that you have sufficient equity/Down payment (20% or more). Due to their high-risk tolerance, they are considered the most expensive of the three categories of lenders.
Bottom line: If you have at least 20% down, you will almost certainly get approved, have higher interest rates + costs, and are considered to offer short-term mortgage solutions.
Each of these lenders has a place in the mortgage market because they solve different problems for different applicants. None of the solutions offered by any of these categories of lenders are bad solutions unless you were mistakenly assessed down the ladder. In other words, if you work with the wrong mortgage professional, you might be placed with a C lender, when you would have qualified with a B or A lender. In other cases, you might be told you don’t have any options when at the very least, a C lender might be able to assist you.
Therefore, it’s important to work with the right mortgage broker so that all your options can be explored. We take the approach of “working down the ladder”. That way, we know that if we have settled on a solution, it’s only after exploring all the best options that are available. Call us for more information on your mortgage scenario at (905) 455-5005.