Alternative mortgages
When your file falls outside traditional lending guidelines, there is still a route forward. Here is how alternative lending works, and what it costs.
Most people know the traditional route: a bank, a credit union, or a mortgage lender, all working from a similar rulebook. When your file fits that rulebook, it's straightforward.
When it doesn't, you still have options. Some people call them B mortgages or B lending. At Team Levine we call them alternative mortgages.
What is an alternative mortgage?
An alternative mortgage comes from a lender who is willing to look at files that fall outside traditional guidelines.
You might need an alternative lender if:
- Your credit score is under 600
- You're currently in a consumer proposal
- You've been discharged from bankruptcy recently
- Your credit is fine, but your income doesn't stretch far enough for the amount you need
- You're newly self-employed and don't yet have two years of tax returns
That last one surprises people. You can be earning a good income and still not qualify, simply because the income history isn't long enough yet. Traditional lenders usually want two full years of declared income before they'll count it. An alternative lender will often work from 12 months of bank statements showing what the business actually brings in.
More on mortgages for the self-employed
Where the guidelines differ
Traditional lenders generally cap debt service ratios around 39% GDS and 44% TDS. Alternative lenders can go to 55% on both, and in some scenarios as high as 60% GDS and 60% TDS.
They're also more flexible on amortization. Traditional lenders stop at 30 years. Alternative lenders will often go to 35, which lowers the payment and can be the difference between qualifying and not.
What it costs
Alternative lending costs more than traditional lending, and you should go in knowing the numbers.
Expect a higher interest rate than a traditional lender would offer, and a fee of roughly 2% of the mortgage amount. That 2% is the total: it covers both the lender's fee and ours.
You'll also need a larger down payment. The usual minimum is 20%. For a condo, or for a property in a more removed area, it's often 25%.
On top of that, you'll pay your notary and an appraisal on the property, usually around $500. Our closing costs calculator gives you a fuller picture of what to set aside.
We'll put the full cost in writing before you commit to anything, so you're comparing real figures rather than a rate on its own.
Usually a step, not a destination
Most alternative mortgages are written on shorter terms, often one or two years. The goal is to use that time to strengthen the file: rebuild credit, establish the income history, build equity. Then we move you back to traditional lending at a better rate.
We'll tell you at the outset what that path looks like for your situation, and what you'd need to do to get there.
Not sure where you fit?
Some people who ask us about alternative mortgages turn out to qualify traditionally. Others don't, and are relieved to learn there's still a way forward.
Either way, the answer starts with a conversation. Reach out and we'll go through your situation and tell you honestly which route fits.