As many borrowers come to know, there are few types of mortgage lenders that exist in the world of lending. To simplify things, there are 3 main types:
- “A Lenders”
- “B Lenders” Aka “Alternative Lenders”
- Private Lenders
The “A” mortgage lenders consists of the traditional banks and institutions that most people bank with. These mortgage lenders are usually the 1st choice for borrowers who seek a mortgage approval but not only because they offer the good rates, but also due to the fact that they are comfortable with them. There are also “Alternative A” mortgage lenders who offer products very competitively to that of banks and are often able to provide better rates. These institutions usually operate as “Monoline lenders” which basically means that they only deal in one area of banking and do not offer full services banking as the 5 major banks. In either case, when it comes to rates, these types of mortgage lenders are the ones that offer the best products. Having said that, when it comes to getting approved for through these types of lenders, the application of the borrowers must be polished; with the applicants demonstrating low risk with great credit and provable tenured income. Most of these types of mortgages are also insured to protect the interests of these banks and institutions. Since the respective insurance companies are in the business of maximizing the collection of premiums and minimize claims, they too are looking for low-risk applicants.
The “B” mortgage lenders consists of various non-banking institutions that deal almost exclusively in mortgages. Unlike the “A lenders”, these type of lenders are not as strict when it comes to their mortgage approval guidelines. This means that clients that have bad credit or lower income than that required by the banks can still get approved for a mortgage. Having said that, these mortgage products require a down payment of at least 20% because they can only provide mortgages up to 80%. Since all mortgages that exceed 80% loan-to-value must be insured, and because insurance companies don’t have to insure higher risk applicants, most “B lenders” only provide uninsured mortgages up to 80% of the purchase price. Also, since these lenders take on more applicant risks, their mortgage products have higher interest rates than those offered by “A mortgage lenders”. Currently, thee interest rates start at 1% higher than that offered on the “A” side.”
The Private mortgage lenders are typically equity based lenders. This means that the lenders are more interested in the available equity of the home than they are of the applicants’ income and credit (to some degree). Having said that, the interest rates offered by private mortgages are typically much higher than the other lenders discussed above. Private lenders also offer 2nd and 3rd mortgages for those clients that require short term solutions for various reasons.
Although some mortgage lenders are more appealing than others, sometimes their guidelines make it unfeasible to get approved. We approach every application with the clients best interest in mind so if you are in need of mortgage financing we can certainly help you navigate the mortgage world!