What Is an Alternative Lender?
An alternative lender is simply a lender that uses different qualification guidelines than the major banks. That can create options when income, credit, debt ratios or the property itself do not fit traditional bank rules.
← Back to the Alternative Mortgage SeriesDifferent Guidelines. Different Ways to Qualify.
Alternative lenders are not one specific type of lender. The term describes lenders that are willing to look beyond the standard bank approval model and assess a mortgage using different underwriting criteria.
Income Can Be Assessed Differently
Alternative lenders may use different methods to evaluate self-employed, commission, bonus or other non-traditional income.
Credit Rules Can Be More Flexible
Past credit problems do not always eliminate the possibility of financing. The overall file may matter more than one credit event.
Equity May Carry More Weight
Some alternative lenders place greater emphasis on the property value and the borrower's equity position.
Debt Ratios May Be Treated Differently
A borrower who falls outside a bank's debt-service limits may still qualify under a different lender's guidelines.
More Complex Files Can Be Considered
Arrears, tax debt, unusual income, recent credit events or other complications may be considered where a bank would decline.
The Mortgage Can Be More Strategic
In many cases, the alternative mortgage is used as a bridge to solve an immediate problem and create a path back to conventional lending.
An Alternative Lender Is Still a Lender — Just With a Different Box.
The lender is still reviewing risk, income, credit, property and the overall mortgage structure. The difference is that the underwriting rules are not identical to those used by the major banks.
That flexibility usually comes with a higher rate or additional fees, which is why the mortgage should be used for a specific purpose and with a clear plan.
Useful when traditional bank guidelines do not fit the situation.
B lenders, alternative institutions and private lenders can all play a role.
The additional flexibility usually comes with a higher borrowing cost.
The objective should be to solve the problem and know what comes next.
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