Alternative lending refers to lending practices that fall outside the normal banking channels. These are lenders that think outside the box. Therefore, they offer lending solutions to Canadians who wouldn’t otherwise qualify for traditional bank products.
Although we all like to think that we’re going to qualify for the best mortgages available, this isn’t always true. Sometimes life just gets in the way! So here are four times that alternative lending beats your typical banking practices.
Damaged credit
Life happens, and it can have an impact on your credit. Regardless of why credit has been damaged, there are alternative lenders that provide options. These lenders look at the strength of employment and income, and the down payment or equity to offer a new mortgage.
Although the rates can be a little higher here, it’s sometimes the choice between buying a property or not. Alternative lending provides more options to consumers looking to buy a home.
If you do have damaged credit, the primary goal is to work to improve your credit. In time, this will allow you to move back to a typical mortgage product as soon as possible. An alternative lender can help you to bridge that gap!
Self-employment
If you run your own business, you most likely have considerable write-offs. These strategies make sense for tax planning reasons but don’t do so much for your verifiable income. Traditional lenders want to see verifiable income, alternative lenders can be considerably more understanding and offer very competitive products.
Rates on alternative lending are comparable to those offered in traditional A lending channels. Therefore, alternative lending has become the home for most serious self-employed Canadians. Yes, you might pay a little more in interest rates, but oftentimes that money is saved through corporate structuring.
Non-traditional income
Welcome to the new frontier of earning an income.
Alternative lending is beneficial if you make money through non-traditional means. This non-traditional income can include Airbnb, tips, commissions, Uber income, or other non-standard employment. Most traditional lenders want to see a minimum of two years of established income on a mortgage application. This is not always the case with alternative lenders (depending on the strength of your overall application).
Expanded debt service ratios
With the government stress test reducing Canadians’ ability to borrow, it’s a good point to note that there are lenders in the alternative channel that allow expanded debt service ratios which can help finance more expensive (and suitable) properties for responsible individuals.
Traditional lenders are restricted to standard debt service ratios. However, alternative lenders, depending on the loan-to-value ratio, can be considerably more flexible. The more money you have as a down payment, the more you’re able to borrow and expand those debt service guidelines.
So there you have it, 4 ways alternative lending beats out traditional bank financing. If you would like to discuss mortgage financing, please don’t hesitate to contact me anytime!