Why alternative lending beats traditional financing
1. Damage Credit
Life happens. Someone recently went through a divorce, recently got laid off and has a family to feed, or something went wrong when trying to build their business. It's understandable that not everyone's credit score is going to be perfect. Now everything is settled and it's time to buy and house and establish yourself. What do you need? Big banks look at your credit history and may decline you because of your previous credit history.
With the opportunity to use alternative lending, we have lenders that can help fund your mortgage and help get you the house you've been looking for. There are lenders that offer you the mortgage needed because of a strong income and downpayment. The rates may be a little higher, but it's an opportunity to get you the foundation you need, and to help build your credit stronger when you need to refinance in the future.
If you have a bad credit score, help bridge that gap between your income, with a mortgage by using an alternative lender. A mortgage broker can help consult you with your financials, and pair you up with a lender that has a damaged credit repair program.
2. Non-Traditional Income
You've worked hard to earn your money. You decided to use your basement as an airbnb, you earned tips as a waitress, or you've recently become a uber/lyft driver for that past few months. Alternative lending look at your strong, overall income and provide you an opportunity with a mortgage. Many banks want to see a consistent, two year income before they offer you the mortgage you want.
3. Self Employed
You've recently started your business and you've had a consistent income for the past few years. You're ready to buy your first home. You know you're able to support the payments for a $800,000 house, but the banks look at your T4 that shows your income of $40,000 and will offer you a $200,000 mortgage. Many self employed workers want to save their hard earned money and do write-offs at the end of the year. Not always the best decision when they are looking to purchase or refinance their home. What do should you do?
Alternative lending has a variety of programs that give self-employed individuals the ability to use a stated income program. This is a way for the individual to declare their income without it have to be verified directly through financial documentation.
4. Flexible Debt Service Ratio and Stress Test
With Canada's stress test becoming tighter on mortgage lending. Individuals are slowly losing the power to purchase property without co-signing and getting help from family members. What's different about alternative lenders is that they can have slightly different guidelines since they are governed by the government of Canada, but don't have to follow it as strictly since they are investors risking their own money.
Many home buyers face an issue where their GDS/TDS is too high to afford a mortgage. This is when their total liabilities use up a certain percentage of their income. (Ex: Your income is $1000/Month. Usually banks allow you to use $440/Month on monthly occurring liabilities)
Alternative lending gives leeway in two ways. Certain lenders have a more flexible GDS/TDS. Other lenders are able to be more flexible with their stress test. For big banks, that look at a +2%. There are some alternative lenders that look at +0.75+ which makes a significant difference in affordability.