Seeking an alternative mortgage solution? B lenders provide financing options for borrowers unable to qualify with mainstream banks. With more flexible lending criteria, those lenders fill an important gap for those with past credit issues, low income, or non-traditional employment.
This guide will outline everything you need to know about B lenders and how to find the best mortgage in Canada.
What is a B lender in Canada?
B lenders refer to alternative mortgage lenders that offer financing to borrowers who do not qualify for loans from mainstream banks and credit unions (A lenders).
B lenders are private mortgage companies and institutions that are not directly regulated by OSFI federally. Instead, they are provincially licensed and more flexible in their lending criteria and mortgage products.
In Canada, B lenders fill an important gap by providing mortgage financing options to those unable to get approved by the major banks, such as:
- Applicants with low credit scores below 600
- Self-employed individuals or borrowers with non-traditional income sources
- Newcomers or foreign buyers with limited Canadian credit history
- Homeowners who do not qualify for refinancing with their current lender
The trade-off is that B lender mortgages come with higher interest rates, lending fees, and shorter 1-3-year terms before needing to be renewed.
What are the differences between B Lender and A Lender?
There are 8 key differences between mortgages offered by A lenders compared to B lenders:
| Criteria | A Lenders | B Lenders |
|---|---|---|
| Credit Score | 650+ | 500+ |
| Debt Ratios | 42%/44% TDS/GDS | Up to 55%/65% |
| Down Payment | As low as 5% | Typically 20%+ |
| Income | 2 years min | 1 year min |
| Products | Standard | Specialized niche |
| Rates | 2-4% | Up to 2% higher |
| Fees | Lower or none | 1-3% of mortgage |
| Terms | Up to 10 years | 1-3 years max |
So, in summary, B lender mortgages are more readily accessible but come with higher costs for borrowers. The trade-off is worth it for applicants unable to qualify with traditional lenders.
Why Choose a B Lender Mortgage?
Here are 7 reasons Canadians may need to turn to a B lender mortgage:
No Stress Test Required
To qualify with federally regulated lenders, all borrowers must pass a mortgage stress test. The stress test requires the ability to afford mortgage payments at a qualifying rate approximately 2% higher than your contract mortgage rate. However, B lenders are exempt, so applicants only need to meet their minimum requirements. This provides significant flexibility.
Lower Credit Score Accepted
Most A lenders require a minimum credit score of 650+ nowadays. But B lenders are more open to borrowers with scores as low as 500, providing financing options for those with past credit hiccups.
Late payments, defaults, collections, or bankruptcies can negatively impact your score. But if you have been steadily rebuilding your credit, B lenders offer another chance at homeownership.
Higher GDS and TDS Accepted
B lenders often accept GDS and TDS up to 65% and 55%, respectively. This allows applicants with high existing debts or mortgage payments to still qualify.
By exceeding the typical 42%/44% TDS/GDS thresholds, B lenders provide mortgage loans to Canadians with higher ongoing debt burdens.
Self-Employed Income Favored
Proving income as self-employed can be a challenge with regulated lenders. B lenders are more open to applicants with 1 year of consistent self-employed income. Commission-based jobs are also favoured.
Self-employed Canadians often have higher incomes than those in conventional employment. So, B lenders are willing to be flexible with income verification to finance these underserved borrowers.
Mortgages for Newcomers
B lenders understand that new immigrants or students in Canada have limited local credit history. So, they offer alternative mortgage programs tailored to newcomers who cannot qualify with banks.
For new immigrants, owning Canadian property is essential to settling down and establishing roots there. B lenders provide the opportunity for housing based more on foreign income and assets.
Private and Interest-Only Mortgage Options
In addition to standard term mortgages, B lenders offer more complex products like interest-only mortgages and private mortgages backed by individual lenders rather than institutions.
These niche mortgages suit borrowers looking for reduced monthly payments or have unique financial circumstances that standard mortgages cannot accommodate.
Refinancing When Property Value Has Dropped
Standard lenders will limit refinancing amounts to 85% of a property’s current value. But B lenders sometimes allow higher LTV refinancing, letting borrowers pull equity out even when property values have dropped.
This flexibility helps homeowners access funds to consolidate high-interest debts, for example, even in downward housing markets.
Top 10 B Lenders In Canada
Canada has a growing network of private B lender mortgage providers from which to choose. Here are the top 9 recommended companies:
MCAP
MCAP is one of Canada’s largest non-bank mortgage lenders, offering residential and commercial financing. They have been known for mortgage innovation and flexible lending solutions since 1965.
Key Features:
- A broad range of niche mortgage products
- Alternative lending programs
- Lowest B lender rates from 2.5%
- Quick approval turnaround time
Read the full review: MCAP Mortgage
First National
First National Financial is a top monoline mortgage lender that has been providing home financing solutions for over 30 years across Canada.
Key Features:
- A variety of alternative lending programs
- Custom lending criteria adjustments
- Competitive discounted B lender rates
- Fast pre-approvals available
Read the full review: First National Mortgage
Home Trust
Home Trust is a leading trust company providing mortgage financing to underserved Canadians. They offer tailored lending programs for unique borrower needs.
Key Features:
- Dedicated self-employed mortgage program
- Newcomer to Canada mortgage options
- Low credit score program from 508 score
- 1-year alternative income verification
Merix Financial
Merix Financial specializes in niche mortgage products like interest-only mortgages, private mortgages, and alternative lending solutions tailored to each client.
Key Features:
- Custom private mortgages
- Interest-only mortgage options
- Alternative income sources are welcomed
- Self-employed and rental income programs
Pine
Pine is a digital-first mortgage company combining technology with mortgage experts to find Canadians the best rates and products.
Key Features:
- Lower rates than big banks
- Fast 10-minute online application
- Dedicated mortgage concierge advisor
- Longer rate holds available
Radius Financial
Radius Financial focuses on alternative mortgage lending and welcoming self-employed newcomers to Canada as well as applicants with past credit difficulties.
Key Features:
- New to Canada program with options for students or foreign workers
- Low credit score program from 620+
- 1-year history self-employed income
- Quick approvals in as little as 24 hours
CMLS Financial
CMLS Financial combines flexible B lending with the low rates and long terms of an A lender. They are a top choice for those who need quick financing but want to avoid short B terms.
Key Features:
- Low rates from 2.19% with extended terms up to 10 years
- Specializes in quick funding residential loans
- Self-employed programs available
- Fast approval turnaround time
RFA
RFA Mortgage Corporation, previously Street Capital, is a leading Canadian mortgage lender known for innovation and flexibility.
Key Features:
- Wide variety of mortgage products
- Alternative self-employed income programs
- Solutions for past credit issues
- Fast approvals in as little as 24 hours
Citadel Mortgages
Citadel Mortgages provides mortgage financing solutions, including bank statement income verification, low credit improvement programs, and private mortgages.
Key Features:
- Programs for new immigrants and self-employed
- Low credit score improvement mortgages
- Bank statement income verification
- Quick access to private mortgage financing
Neo Financial
Neo Financial utilizes online technology to offer mortgage services tailored to each borrower’s unique situation.
Key Features:
- Digital mortgage process is done completely online
- Mortgages for newcomers to Canada
- Bank statement income verification
- Fast approvals in just 1-2 business days
How to Apply for a B Lender Mortgage?
The application process for a B lender mortgage is quite straightforward, although the documents and details required may vary between lenders. Here is an overview of the common steps:
Review Loan Options
Research different B lenders and products available based on your specific needs and situation. Consider types of income, credit score factors, and specialized offerings.
Check Rates and Fees
Compare interest rates and all lender fees to find the most cost-effective B lender option for your mortgage amount and term. Account for prepayment options.
Start Application
Complete a mortgage pre-approval application with your selected B lender. This can usually be done quickly online or over the phone.
Submit Documents
Provide any financial statements, tax documents, pay stubs, and ID that the lender requires to verify your income, debts, assets, and down payment sources.
Get Pre-Approval
The lender will review your application and documents and issue a pre-approval letter detailing the mortgage amount, rates, and terms you qualify for.
Find Your Property
With mortgage pre-approval in hand, you can confidently make an offer and proceed to purchase a property once an agreement is signed.
Obtain Final Approval
Before closing, the lender will confirm your details, run credit checks if needed, and issue a final approval. Down payment funds will need to be verified.
Close and Fund Mortgage
Lawyers will finalize and register the mortgage agreement against your new property title. Mortgage funds will then be released directly to you on closing day.
Tips for Getting a B lender Mortgage in Canada
When applying for a B lender mortgage, there are 5 tips that can help improve your chances of getting approved:
- Have 20% or More for a Down Payment: Aim for at least 20% down if possible. B lenders view higher down payments as less risky, so this can offset other issues like low credit scores.
- Show Improving Credit: Highlight that you have an active plan in place and demonstrate your credit score is on an upward trend month to month.
- Explain Any Credit Issues: Briefly explain the reasons behind any past credit issues, foreclosures, or bankruptcies. Emphasize that it was an isolated event.
- Use a Mortgage Broker: An experienced broker can match you with the right B lender and optimize your application to focus on strengths.
- Get Pre-Qualified: Go through a quick pre-qualification process to get an initial opinion on your eligibility for approval before formally applying.
How can you find the Best B Lender Mortgage Rates?
Mortgage rates can vary widely between different B lenders. Here are some tips to find the best B lender mortgage rates:
- Compare published rates – Look at posted rates on B lender websites to shortlist options
- Ask brokers for advice – Experienced brokers have insight into which lenders offer the best discounts
- Negotiate for discounts – Many B lenders are open to rate negotiations, especially with brokers
- Pay for a lower rate – Some B lenders will offer a lower rate for paying an additional fee
- Check for prepayment options – Flexible prepayment privileges let you pay off your mortgage faster
- Monitor promotions – Special discounted promotions are sometimes offered for holidays or slow seasons
Getting pre-approved with multiple lenders is the best way to secure the lowest rate. Improving your credit score and down payment amount will also help reduce your interest rate.
Summary
B lender mortgages play an essential role in Canada’s housing market by providing financing options to applicants unable to qualify with mainstream regulated lenders. B lenders fill a key gap with more flexible debt ratios, income requirements, and credit standards.
Just be sure to compare interest rates and fees when searching for the best B-lender mortgage option for your particular situation. Working with an experienced broker can help match you to the right lender and mortgage product to meet your needs while optimizing costs.
FAQs
Do B-lender mortgages require insurance?
Yes, if the down payment is less than 20%, the mortgage is considered to have a high ratio and requires default insurance. This is available through CMHC or private insurers.
Can I get a B-lender mortgage with bad credit?
B lenders will work with borrowers with bad credit, such as past bankruptcies or collections. However, they still evaluate overall creditworthiness and may decline applicants deemed too high risk.
What types of borrowers use B lenders?
Typical B lender clients include those with low credit scores under 600, high debt ratios over 40-45%, newcomers to Canada, and self-employed individuals.
Can B lenders reject your mortgage?
Yes, B lenders will still decline applicants if they determine the overall risk is too high or the documents provided are insufficient to prove income and assets.
How much down payment do B lenders require?
B lenders often require 20% or higher down payments on mortgages to offset the increased lending risk. However, specific programs may allow for a reduction of as low as 5%.
What happens after the B lender term ends?
Once the term expires, you'll need to renew the mortgage or refinance. If your financial situation has improved, you may qualify for an A lender mortgage at that point with lower rates/fees.
What fees do B lenders charge?
Typical fees are 1-3% of the mortgage amount. There can also be appraisal fees, prepayment penalties, and potentially higher default insurance premiums.