It\u2019s been seven months since new mortgage qualification rules, in the form of Guideline B-20, came into effect in Canada. Under these new rules, put in place by the national banking regulator to reduce risky lending practices, mortgage applicants paying less than 20% down must prove they can continue to carry their mortgage payments at the Bank of Canada\u2019s conventional five-year mortgage rate (currently 5.34%). Those paying more than 20% down must also prove they can carry their payments at this rate, or at their contract rate plus 2% \u2013 whichever is higher.<\/p>\n
These new requirements have inevitably put greater pressure on today\u2019s mortgage borrower, and have even caused some to no longer qualify for a mortgage with the same financial criteria that would have qualified them last year. In fact, mortgage experts predicted roughly 10% of prospective buyers would be removed from the market as a result of B-20.<\/p>\n
So, if you\u2019re one of those denied mortgage applicants \u2013 what choice do you have to qualify for a mortgage?<\/p>\n
When A-Lenders Are No Longer an Option<\/strong><\/p>\n Let\u2019s say, theoretically, you have a decent down payment, but were declined by your bank without a clear explanation from your advisor as to why you were turned down. You may have then turned to a mortgage broker to explore better rate options and a variety of lenders \u2013 but are then told that, even with a broker\u2019s assistance, you still don\u2019t qualify.<\/p>\n There is typically an extenuating circumstance behind for your denial : for example, if you are a new Canadian, your income is too low, or your credit report has been tarnished by any number of past issues, including late payments or even a consumer proposal. As well, those recuperating financially from a family member\u2019s illness, loss of a loved one, messy divorce, or even identity fraud, may find it challenging to qualify for A rates based on their compromised financial scenario.<\/p>\n Or perhaps you\u2019re simply self-employed; your banker may only allow you to use your net income to qualify your home purchase, despite the fact you have plenty of write-offs, and know you can comfortably purchase or refinance a home.<\/p>\n At this point, you may have been offered mortgage financing at a \u201cB\u201d or even \u201cprivate\u201d lender. This seems like great news \u2013 but how should you proceed? It\u2019s important to note that you likely can find mortgage financing for the amount you require, but it\u2019s important to be aware! These higher-risk loans come with extra fees, higher rates and monthly payments, shorter terms, and little patience from the lender should you miss, or are late with, a payment.<\/p>\n This is where most people will stop reading as they really didn\u2019t want their desired home that badly, and would prefer to fix the financial mess they\u2019re in before purchasing a home. But if you are still interested in getting a mortgage for your home and want more information \u2013 read on!<\/p>\n The Difference Between a B-Lender and Private Lender<\/strong><\/p>\n To differentiate between a B-lender and a private lender it basically boils down to your rate, your \u2018lender\u2019, and your fees. Both will have a lender fee (sometimes called a \u2018governmental\u2019 fee). Both will have strict rules. Both are happy to help you out in your time of need.<\/p>\n A B-lender is a lending institution that will lend to folks with bruised credit, or with mortgage lending ratios that are slightly higher than what an \u201cA-lender\u201d could approve due to underwriting and government rules and regulations. Often, many A-lenders will typically have a B-lender available for a short-term fix to then get you back to the A-side after a year or so.<\/p>\n With a B-lender :<\/strong><\/p>\n \u2022 rates today are anywhere between 3.69% to 5%+ depending on the severity of the situation Private lenders are equity lenders who are typically individual investors, or a pool of investors, looking to provide mortgages or loans for a short term. These types of financing are available to those who will not qualify for A or B lenders and are considered very risky, but can be used as a short term fix for a tough personal financial situation. DO NOT miss your payments to a private lender, as your fees will climb and you can lose your home pretty quickly!<\/p>\n With a private lender :<\/strong><\/p>\n \u2022 rates today are anywhere between 7.99% to 12.99%+ Explore Your Options to Qualify for a Mortgage<\/strong><\/p>\n It\u2019s always a great idea to contact a mortgage broker to explain the details and risks associated with non-A lending, and to explore the help they may be able to provide. If your financial situation is still beyond their aid, it may be best to sell your home, or put off that desired home purchase until your existing debts are paid and you start fresh again with your credit.<\/p>\n
\n\u2022 lender fees are 1% up to 3%+
\n\u2022 mortgage brokers may also charge a broker fee for their work
\n\u2022 terms are usually between 1 to 3 years
\n\u2022 properties typically within the GTA or major city area
\n\u2022 minimum is 15% down payment from your own sources (you will need to get a \u2018private\u2019 5% down payment \u2013 could be 10% to 12.99%), must qualify with those added payments
\n\u2022 additional personal income information will be required
\n\u2022lending ratios are used to qualify a borrower<\/p>\n
\n\u2022 first, second, and even third mortgage financing is available but at a higher cost
\n\u2022 your down payment\/ equity must be at least 20% in the GTA
\n\u2022 up to 35% and even 50%+ depending on property location and severity of your current financial situation
\n\u2022 you are responsible for the cost of a property appraisal from the lender\u2019s approved appraiser
\n\u2022 you may be responsible to pay the lender\u2019s legal fees in addition to your own legal fees
\n\u2022 lender fees can usually start at 2% and go up
\n\u2022 mortgage brokers may also charge a broker fee for their work
\n\u2022 minimal personal financial information is required
\n\u2022 lending ratios are typically not considered to qualify a borrower<\/p>\n