First, let’s understand the difference:
As mortgage professionals, we refer to the 3 major tiers of lending as: A lender mortgage, B lender mortgage or private lender mortgage. If this terminology sounds familiar it’s because, over time, these terms have become quite mainstream, even beyond industry professionals.
A lender mortgage: Refers to any mortgage funded through traditional lending sources (i.e. major banks or tier-A broker channel bank)
B lender mortgage: Refers to any mortgage funded through non-traditional banks/lending sources, but still governed by B-20 guidelines (i.e. Trust companies, tier 2 banks, monoline institutions & credit union)
Private lender mortgage: Refers to mortgages funded through sources not governed by B-20 (i.e. Mortgage Investment Corporation (MIC), numbered company/registered corporation or individual lenders)
Pros and Cons of a ‘B lender mortgage’:
Pros and cons can vary from client to client, so to keep things simple, we’ll limit the pros and cons of a B lender mortgage to 3 major points for each.
- A ‘B lender mortgage’ offers a clear solution for clients who need financing but do not qualify through traditional banks for reasons such as: nature of income, high debt servicing ratios, previous mortgage arrears, poor/blemished credit, past bankruptcies or consumer proposals, non-traditional down payment sources, etc.
- A “B lender mortgage” is typically funded on 1 to 3 year terms (rather than 5 year terms) offering the borrower future flexibility to improve their circumstances and easily transition back to traditional lending sources without hefty penalties.
- B lender mortgages are less stringent on qualification guidelines and allow much more leniency on: debt servicing ratios (thus allowing higher affordability), less than perfect credit scores, non-conforming sources of income (ex. Business for self, commission, bonus, part time, contract) and varying down payment sources.
- It’s no secret that B lender mortgages come with a higher price tag in 2 ways: Interest rate and closing costs.
- B lender mortgages often require a property appraisal for all mortgage (regardless of purchase or refinance) whereas A lender mortgages do not (or at least do not 90% of the time). We wouldn’t refer to this explicitly as a con… but it is an added cost of closing.
- A ‘B lender mortgage requires a minimum down payment of 20%. For refinances, this often isn’t a hurdle for borrowers. However, for purchases it can easily affect buyers drastically if the buyers planned only for the minimum down payment requirements of 5%, 10% or even 15%.
Since a B lender mortgage isn’t advertised as generically as your traditional bank mortgage, it will be hard to seek out the necessary information you need pertaining to rates, term/conditions and underwriting requirements.
We’ll get that information for you though. Call us today (905) 455-5005.