It’s always great to have an alternative option, right?! This theory holds true when it comes to your mortgage choices as well – the broader selection your mortgage agent offers, the more likely you’ll be to secure a mortgage that meets your unique needs.
An alternative mortgage – also commonly referred to as non-traditional or unconventional – is exactly that: an alternative to a conventional (or traditional) mortgage. If you’re a new homebuyer or existing homeowner who doesn’t meet traditional lending criteria, an alternative mortgage lender may offer you a second chance at qualifying for your home loan.
Alternative mortgages have become more commonplace in recent years, particularly with the introduction of stricter mortgage rules including stress testing, which are making it more difficult to qualify for a conventional mortgage. In addition to not being able to pass the required stress test, other common factor that prevent homebuyers from obtaining a traditional home loan include: low credit score; non-traditional income (eg, self-employed or part-time worker); lack of established/blemished credit; or insufficient employment history to demonstrate steady income (perhaps due to job loss or changing jobs). If any of these relate to your current situation, an alternative mortgage lender could be your best option.
How are alternative mortgages different?
Alternative mortgages are offered through alternative mortgage lenders, also known as ‘B’ mortgage lenders, who provide the same products as traditional, or ‘A’ mortgage lenders. There are some differences, however, particularly when it comes to qualifying criteria that tend to be less strict when using unconventional mortgage lenders. For instance, these lenders will still look at your credit history but your credit score doesn’t have to be as high as required with a traditional lender.
An alternative mortgage also carries shorter loan terms (typically one to two years) and, while interest rates tend to be a bit higher, they offer greater flexibility. It’s also important to note that alternative mortgage lenders are regulated financial institutions that are held to the same standards as conventional lenders.
And if you still don’t qualify for an alternative mortgage, a private mortgage is yet another tool your mortgage agent has access to in order to get you approved.
Have questions about your best mortgage options? Answers are a call or email away!