There are many different lenders who offer mortgages, and sometimes it can be difficult to know which one is right for you. In this article I will explain the differences between a B lender and an A lender so that you can make an informed decision about which one is best for your situation.
A lender is a traditional bank, credit union or monoline, who will only lend to you if you have a good credit score, and can afford the monthly payments on the home you want to buy. They use your credit score, income, and debt to determine if you qualify for a mortgage. If they think that it’s too risky for them to take on your risk (i.e., low down payment), then they won’t give it go! A Lenders can lend on purchases with as little as 5% down for a client with good credit and job history. These mortgages are insured (in case the borrow defaults, the banks money is covered) by one of the 3 insurers in Canada – CMHC, Sagen or Canada Guaranty.
Some of our A Lenders include:
- First National
- Home Trust Accelerator
- … and many more
B lenders are non-prime or subprime lenders. That means they’ll offer you a higher interest rate than A lenders, but if you have poor credit, this may be the only option for getting a loan. B lenders have non B20 conforming products which allow borrowers to qualify at contract rate, and they can charge fees, extend ratios, accept non traditional income, etc. B Lenders require a minimum of 20% down as the mortgages are not insured, and therefore the lender is not protected in case of borrower default.
The most common type of B lender is known as an “alternative mortgage.” In addition to offering higher rates of interest compared with traditional mortgages, these alternatives also tend to come with fees for arranging the mortgage.
Some of our B lenders:
- B2B (they also have an A side)
- Community Trust
- Home Trust (Classic)
- … and many more
An A Lender Can Also Be a B lender
Yes, that’s right.
Many A lenders will also have a B division, just as some B lenders have A divisions. Therefore, they can be an A lender and a B lender at the same time, however they’ll usually lean to one side more than the other.
Home Trust and Equitable Bank are predominantly B lenders, however they also have an A side.
ICICI Bank would also be considered a B lender. They also have an A side, however it focuses purely on insured mortgages (purchases with less than 20% down payment and therefore requiring default insurance such as CMHC).
Most monoline lenders fall into the A category, but also have strong B divisions. Blueprint, Merix, Home Trust, RMG, MCAP and RFA are all A lenders who also have a strong B side.
Self-employed or Commission
If you are self-employed, commission based or have a lower income than the typical borrower, there may be additional requirements that need to be met before your loan application can be approved.
You will need to provide more information about yourself and your business in order to qualify for a mortgage. You might also want to consider having someone else co-sign the loan with you if they are willing and able to do so—this way, both parties benefit from having someone else take on some risk while they benefit from having another adult in their lives who cares about them as well as their finances.
Self Employed or Commission with an A lender involves having 2 years worth of T1’s using the self employed income averaged across the two. A lenders want to see consistency since most times they offer 5 year terms and need to know that the borrower will be able to keep up the income needed to make payments on the mortgage during the term.
Self Employed or Commission with a B lender can be as easy as providing 6 months worth of invoices and bank statements to annualize income. Most B lender terms are 1 year, with some of them being 2 years if more time is needed to build up income to qualify the borrower for an A side mortgage.
GDS/TDS ratio higher than 39/44%
GDS/TDS Ratio is a measure of your debt to income ratio. It’s used by lenders to determine the risk of lending to you, and it’s an important factor in determining whether or not you will qualify for a mortgage.
If your GDS/TDS ratio is higher than 39/44%, then it may not be possible for you to obtain financing with an A lender.
Many of the B lenders will consider GDS/TDS up to 60/60% when credit is above 600
GDS (Gross Debt Service) and TDS (Total Debt Service) are calculated based on your income, potential house debts and other monthly debts.
GDS takes into account your Principal, Interest, Taxes and Heat (and strata if applicable).
TDS takes into account all of the above (PITH) as well as other monthly debts like car loans, student loans, credit cards, etc.
You may still be able to qualify
You may still be able to qualify for a mortgage.
The requirements for qualifying for a mortgage are:
- You must meet the basic credit requirements of your lender, which can include having good credit (or having a guarantor who does) and being capable of paying the monthly payment on time.
- Your income must be sufficient to support the size of your loan, which is usually repaid over 25 years or more. In addition, there may be other factors that affect whether or not you’re eligible for a particular loan—for example, if you’re self-employed without access to traditional forms of collateral like property ownership or wealth management vehicles.