If a prime lender has said no, or somebody has told you a B lender is where your file belongs, here is what that actually means. A B lender, sometimes called an alternative lender, approves files that prime lenders decline: credit that has taken a knock, self-employed income the tax returns undersell, or a property that is simply unusual. You pay for that flexibility with a higher rate, usually a lender fee, and normally at least twenty percent down. Used well, a B lender is a bridge with a planned way off it. Used lazily, it is an expensive place to sit. Knowing the difference is what this is about.
Who actually ends up at a B lender
Self-employed borrowers whose write-offs bring their taxable income below what the purchase needs. A B lender can qualify you on your bank statements rather than on your tax returns.
Credit that has taken a knock, whether that is a consumer proposal, a hard year through a divorce, or a business that went sideways. B lenders read the story rather than only the score.
Money owing to the CRA, where some B lenders will fund a refinance specifically to clear a tax debt that is blocking a prime approval.
Unusual properties that prime guidelines cannot cope with, where a human underwriter at a B lender can look at the actual file in front of them.
What it costs
Three things separate a B mortgage from a prime one. The rate is higher, commonly by one to two percentage points depending on the file. There is usually a lender fee of around one percent of the mortgage, paid on closing. And the terms are shorter, often one or two years, because nobody intends for you to stay. You will generally need twenty percent or more in down payment or equity as well. The exact numbers depend entirely on your own file, which is why I will not print a rate here, and why anybody quoting you one before they have seen your documents is guessing.
The question to ask about a B lender is not what the rate is. It is what the exit is. A good B mortgage comes with a written plan for leaving it.
The exit plan is the whole point
Here is how a healthy B file goes. In year one the B lender funds the purchase or the refinance, and we name out loud the specific thing being fixed: two years of cleaner tax filings, a proposal falling off the credit report, the CRA balance cleared. In year two we check how that is coming along. At renewal the file moves to a prime lender at prime pricing. That is the bridge doing exactly what it was built to do. When I place a file with a B lender the exit criteria go in writing on day one, because a bridge with nothing on the far side is only a pier.
A few things worth pausing over
There are a handful of things that should give you pause, whoever you happen to be working with. A broker who reaches for the B option before they have properly exhausted the prime lenders. Fees that surface late in the process rather than being disclosed at the start, since BCFSA rules require that disclosure and a surprise fee is a compliance problem as well as a worrying sign. And any sense of being hurried toward signing. If you are being rushed toward expensive money, it is completely reasonable to slow down and ask somebody else what they think; my guide on choosing a broker has the fuller list. For the self-employed version of this story, the self-employed mortgage guide is where to start.
Questions people ask me
Is a B lender the same as a private lender?
No, and the difference matters. B lenders are established institutions, including federally regulated trust companies, with rates modestly above the prime lenders. Private lenders are individuals or funds, they cost a good deal more, and they suit only short-term situations with a clear way out.
How long do people usually stay with a B lender?
Commonly somewhere between one and three years. The term is short by design: fix the thing that blocked the prime approval, then move across at renewal.
Do B lenders require a bigger down payment?
Generally yes, at least twenty percent down or the equivalent in equity, and sometimes more depending on the property and the file.
