Alternative B Lending Mortgages
Alternative B Lending mortgages are a welcome to borrowers with credit challenges or those that do not qualify mainstream.
Over the last 12 years, qualifying for a bank mortgage has become more difficult then ever before.
Tighter regulations and tougher qualifying criteria has presented a challenge to borrowers.
These borrowers might not qualify because of high TDS and GDS.
It could also be because their credit score is below what the bank and insurer needs.
What is offered by Alternative B lending?
B Lending offers and excellent alternative options.. Pricing is between bank and private mortgage financing.
Alternative lending has changed the mortgage lending landscape for the better. Whereas before it was either bank financing, or the more expensive, private lending. Alternative mortgage solutions comes with a price that is competitive. As of today, the lowest rate on the B side is 2.99%. The normal range can be between 2.99% to 5.99%. Check our detailed B lending mortgage rates.
Another component to alternative lending pricing is a lender fee which is common. There is a 1% fee of the loan amount added to increase the lending yield. Still, it is a small price to pay considering they will accept the higher lending risk.
Lenders in this lending space are banks, trust companies, and credit unions. A Mortgage brokers is the best source of alternative lending. There are brokers who are well experienced in sub-prime financing and are adapt at B lending.
Mortgage broker will also add a brokerage fee for the service they provide a borrower. An alternative mortgage structured on a shorter term. The amount the bank pays a broker is not commensurate with the time and effort it takes to put a file together. When dealing with a broker be sure they are transparent with you from the start. Different brokers will charge different amounts. In purchases the broker fee as is the lender fee will be part of the amount you need to cover on closing. In refinancing or 2nd mortgages, such fees taken from the mortgage advance.
Alternative B Lending mortgages vs Bank financing
How does an Alternative mortgage compare then to a bank mortgage? Let’s find out.
Assuming a $300,000 mortgage at bank rate of 1.84% compared to a B lending mortgage at 2.99% here is the comparison:
Amount: Rate: Amortization Term Monthly payment$300.000 1.84 25 yrs 1 year $1247.31**$300,000 2.99 25 yrs 1 year $1418.20**
For a borrower who is unable to qualify on the A side, paying $170.89 more monthly or $2050.68 on the B side would be acceptable. Moreover, if borrower improves his credit status within the year, he may qualify with an A lender. There is also the cost of the 1% lender fee, and whatever a broker may charge for services.
How is pricing determined in Alternative B lending?
Pricing on the alternative B lending side, factors the following:
- property location
- credit score
- TDS and GDS ( stress test)
Geographic property location is paramount in Alternative Lending. This is so because if the property is in a non lending location, the other 2 factors, do not factor in.
Location in B lending focuses on major urban areas of population with 100,000 or more. Lending locations may extend to population areas of 50,000. Some B lenders may lend in smaller areas that are within a 50 km radius of a major center. They might reduce the lending values in this case. Likewise, if a property is on well and septic it could reduce the lending percentage. Since higher risks are take on the B lending side, preference is in areas where the real estate market is brisk. This helps if a property needs to sold.
Once lending in a particular location is doable, then credit score is the next factor to examine. Some lenders may have a hard stop at beacon scores below 550 or 500. Others may consider scores below 500 at increased pricing. These lower credit scores are usually on account of current credit issues. At the other extreme are credit scores that are well above 600, 650 or 680. In this case credit is not usually the reason why a borrower need B lending. It is because of higher TDS and GDS ratios. Or, Self employed people who are unable to provide the necessary documents for the A lenders.
Pricing on the B side takes the credit scores into consideration. Recently, we have seen significant lower rates for borrowers having strong beacon scores. Below is an example of a B side rate pricing.
650+ BEACON Beacon 600-649
Term Rate Lender Fee Term Rate Lender Fee
1 year 2.99% 1/% 1 year 3.39% 1%