For borrowers that fall into this classification, I would further divide them into two groups…those that miss qualifying by a lot and those that miss by a little.
For the near misses, its typically some combination of credit score and debt servicing that cause the application to fall under the line of acceptable lending criteria.
In these situations, a period of time from one to two years may be all that’s required to give them the opportunity to improve upon the areas that resulted in an “A” lender decline.
For individuals that miss qualifying by a lot, more time is typically going to be required to get their financing and credit profile to an acceptable level for lower cost mortgage interest rates.
Regardless of how or why an applicant gets declined by an “A” mortgage lender, the next step is to move into alternative mortgage options, or the sub prime lending space.
Alternative mortgage options include both institutional and private mortgage lending solutions.
With the current strength continuing in the Canadian real estate market in general, there are more sub prime options popping up post recession, providing more alternative mortgage options to both home owners and commercial property owners.
In addition to more alternative mortgage lenders existing in the market, we are also seeing more flexibility within some of the sub prime lending programs.
This is due mostly to institutional sub prime lenders wanting to hold onto their customers longer, either within the alternative lending space, or moving them into their own “A” credit products.
In many situations, the Alternative institutional mortgage options can be priced very similar to private mortgages with potentially tougher prepayment terms in the event that the borrower can the ability to move to an “A” lending product before the end of the mortgage term.
So for a borrower that is confident that they only need one or two years at the most to repair their credit to a satisfactory level, they may be better off going with a straight private mortgage that may even provide an open repayment option after so many months of the interest term have gone by.
One of the ways some the institutional alternative lenders are dealing with this is to provide adjustable rate mortgages with three to five year mortgage terms where the borrower can lock in their rate to a fixed rate in the future and benefit from better rates if they are able to improve upon their credit score during the mortgage term.
The good news for borrowers is that there are a number of different options to choose from, and depending on your situation and strategy for getting back to the “A” lending market, certain alternative mortgage options are going to be more appropriate for you than others.
The best way to figure out which option to select is to work with an experienced mortgage broker who can work through all the different potential scenarios with you.
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel