Types of Mortgage Lenders

When it’s time to get a mortgage, it can be confusing with all the different types of lenders out there to finance your loan. There are 4 main types of lenders in the mortgage world and it’s important to know the differences between them. Let’s take a closer look at each one.

1. LOCAL CREDIT UNIONS & TREASURY BRANCHES

Most are familiar with this type of lender from local advertising. These are branches throughout communities that offer mortgages according to a list of pre-set criteria.

2. MONOLINE LENDERS

This group of lenders usually source mortgages through the mortgage broker channel, which consists of banks, trust companies, and mortgage companies. All lenders involved in the mortgage broker channel are governed under OSFI and Bank of Canada rules. These lenders fund mortgage loans through the first type of mortgage lenders and investors. The benefit of using this type of lender is that they have access to all of these sources and are able to utilize their guidelines to fit your needs.

3. B & SUBPRIME LENDERS

This class of mortgage lenders also includes a variety of banks and private lenders to choose from. You may have your mortgage funded through this type if you are self-employed or fully commissioned, have high debt, or your credit has been disrupted due to a negative life situation (i.e. divorce, illness, etc.). They do require a larger down payment as they take on a higher risk when accepting you as a mortgagee. These lenders may require higher rates and extra fees than the two types of lenders prior, and may ask for extra documentation.

If you are self-employed, you have likely paid yourself a very small amount in taxable income. Though this can help you save money it may hinder your mortgage process as the lender will want proof that you can make the required payments. Subprime lenders are able to take all your documentation and determine your annual income to calculate what you’re able to afford. If you have less than 20% as a down payment it is likely you will have to pay a 6% mortgage insurer premium as you are a high risk.

If you are holding on to a high level of debt, a subprime lender is your best bet. These lenders are often willing to take on debt servicing levels much higher than common lenders.

If you have credit issues, most lenders will require documentation of two years free of credit issues as well as an explanation for the credit issues you had in the past. A subprime lender is also the best bet in this situation as they have a much broader scope and will set a maximum loan value based on the individual case.

4. PRIVATE LENDERS

This group of lenders depends on private investors to fund mortgage loans. To account for this, the rates are usually higher than a conventional mortgage. If you have tax arrears or need a short term fix a private lender can be a great option. When you’re in tax arrears it means you owe money to the Canada revenue Agency or Provincial Government, which means a local branch or monoline lender will not proceed. A private lender will take cases in tax arrears on a case-by-case basis, or you may just have to pay the taxes to be able to get a mortgage. If you need a short term fix you could be in a variety of situations. Perhaps you need to pay off outstanding taxes/debts or payout an ex-spouse or business partner. Regardless, a private lender can help you get back on track so you can obtain a conventional mortgage in the future.

If you would like more information on the types of mortgage lenders or would like to discuss how to obtain a mortgage yourself, contact your local mortgage professional or AC Lending today!