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When it comes to mortgages, people often fail to consider options outside of their local bank. However, by doing so they are closing themselves off from a wide array of lending options that a well-connected brokerage could help them obtain.
A mortgage lender is an institution or an individual who provides loans in order for you to purchase property. This wide variety of choices allow for a greater array of financing options across lenders in order to better suit each individual’s plan and circumstances. These lenders can vary from major banks to credit unions, to private lending firms. However, before you can understand the different types of lenders, it is important to understand the role of the lenders in the buying process.
Now, before we dive into the role of mortgage lenders, let us provide you access to our network of the best lenders in Canada. Click the link below to book a free strategy call to find out more today.
What Do Mortgage Lenders Do?
Put simply, your mortgage lender is the person or institution providing you with the required funding to complete your real estate purchases. However, determining how those funds are distributed and the specific terms and conditions of the loan is a more complicated process.
Each lender will have their own criteria for approving a mortgage application. This will often include information such as employment status, debt-to-income ratios, credit score and the type of property being purchased. This allows the lender to assess the risk involved in lending on a specific purchase. From there, the lender will determine the interest rate and repayment plans available to you based on your financial health and how likely you would be to default on your mortgage payments.
What is a Mortgage Broker?
While mortgage lenders are responsible for directly providing the funds, a mortgage broker is a licenced professional who serves at the connection between applicants and a variety of potential lenders. Despite not setting the specifics of the loan themselves, it is a broker’s job to help you find the best rates and lenders available for your specific circumstances. Your brokerage is also allowed to collect and submit important documents on your behalf.
Since most brokers have relationships with multiple lenders, it can also be incredibly advantageous to use a broker to manage your mortgage application. This way you can use a single application with the brokerage to determine your ability to receive multiple loan options, saving you both time and money. Your broker will also be capable of seeking out exclusive rates and offers with your lender that would not be available if you tried to apply to them directly.
Finally, good brokers are a great option because they will not charge you for their services. Mortgage brokers get paid a commission after you enter a contract with the lender, meaning they have every incentive to find you A-Lender that will give you the best financing available, otherwise they do not get paid.
Discover How To Apply For An Investment Property Mortgages With This Step By Step Guide
Types of Mortgage Lenders
Now that you understand the roles of both lenders and brokers in the mortgage process, let’s take a look at the classifications of lenders you can receive financing from.
‘A-lenders’ are major financial institutions and mortgage lenders who can usually provide the lowest mortgage rates available. This includes major banks, credit unions and select qualified lenders. These lenders typically have the strictest criteria for their mortgage products. A-lenders will look for borrowers who have the lowest level of risk while maintaining the highest level of financial stability.
In order to qualify for loans from these lenders, applicants must be able to pass the mortgage stress test – a test which puts their finances against a minimum qualifying rate to ensure they can continue to make payments regardless of any sudden financial hardship such as unexpected job loss or an unexpected rise in interest rates.
Plenty of Canadians who have a strong credit history and reliable income do not qualify for A-Lenders. However, there is still the option of getting approved for a mortgage from a B-Lender. These lenders include home trusts, monoline lenders, smaller banks and other financial institutions. In fact, there are plenty of A-lender institutions who have a separate department that serves as a B-lender.
These mortgage lenders usually have less strict criteria than an A-lender, but in exchange offer higher interest rates to offset the higher level of estimated risk.
Private lenders are individuals or businesses that privately provide loans to prospective buyers. These lenders have a much wider range of freedom in how they loan their money and are capable of setting their own terms and conditions for both the approval process and the mortgage loan itself. These lenders typically operate by assessing the property being purchased more heavily than other lenders while also considering your credit health.
This is because private lenders need to be confident in the event of foreclosure, they will be able to sell the property as quickly as possible to recoup their investment. This is a concern shared with other types of lenders, but amongst private lenders it is taken more seriously due to the average borrower having a higher risk of defaulting on the loan.
With such a wide array of mortgage lenders and financing options available, you want to be sure you are getting the best option for your specific situation. So, it is highly recommended that whenever you plan to buy property, you seek out a pre-approval through a brokerage who will match you with the best mortgage lender available to you.
Fortunately, at LendCity we work with a network of 35 experienced lenders to ensure we are getting you pre-approved and funded by the ideal mortgage lender for you. If you have any questions or are ready to apply, you can call our office at 519-960-0370 or visit us online at LendCity.ca to fill out our online application.