Welcome to Part 2 of “How Do I Buy a Home?” In Part 1, we addressed how you affected the algorithm. If you have not read it yet, I suggest you read it first HERE. In part 2 we are going to look at the Lenders.

Essentially there are 5 levels of lenders. They start from the A level lenders such as the main Banks, then you have alternative financial institutions, followed by Mortgage investment Corporations (MICs) , Private Lenders, and finally if all else fails we may consider Rent To Own. Let’s look a little deeper at each.

A level lenders are the large financial institutions in Canada and they tend to offer the best rates and options. Most times when a person applies for a mortgage through their own bank, they are using an A level lender. The problem with A level lenders is that they can be the most strict when it comes to lending. Some determining factors include your income to debt ratio, employment history, and credit level. As mentioned previously, if you do not have 2 years of employment history to show, or if your credit score is below 600 you may have a difficult time borrowing from an A level.

If you do not qualify for an A level lender, your Mortgage Broker may suggest using any of the following. Keep in mind that your Mortgage Broker should also have an exit strategy so they can move you from one of the following into an A level lender when you do qualify as your credit improves, employment history is established, or you reach a certain down payment. Remember that finding the answer to “How Do I Buy a Home?” is to plan a course of action and follow it.

Next are B level or Alternative lenders. These lenders are other financial institutions and tend to have higher interest rate and fewer options to their mortgages. While you tend to pay a little more, the mortgages are more forgiving of questionable credit or employment history.

There are also Mortgage Investment Corporations which are a group of investors who pool their money to invest in real estate and Private Lenders who are not financial institutions, but rather private individuals who look at lending as an investment. In both cases they are looking to make a profit and can be even more forgiving of certain criteria at the expense of higher interest rates. These types of loans tend to have a shorter payback schedule than can be found with a 30 year amortization with an A level lender. This is why it is important to have an Exit Strategy.

Finally, if you have not been approved by any of the lenders listed above, it is usually due to limited down payment, employment history or credit rating. If that is the case, you may want to consider Rent-To-Own. This option is when you enter into an agreement with an investor or R.T.O. organization where you establish monthly payment terms as if you were paying rent, but are instead paying rent and saving for a down payment while at the same time establishing you employment history and improving your credit. You can read more about Rent To Own HERE.

If you remember one of the first things I noted was how I tend to send my clients to Mortgage Brokers rather than Banks. All of these financing options are open to Mortgage Brokers, while Banks only offer their services. Different banks have different services or options and each bank can only offer you what their particular bank offers. As an example, If bank A offers a low interest rate and option to make additional payments to pay off soon, but bank B offers the same interest rate but no option for additional payments, bank B cannot alter their policies to get your business. A Mortgage Broker can “shop around” to find the best solution for you…period. Not just the best solution that a particular bank can offer you.

Another reason is if worst case scenario you are not approved at the last minute, if you are working with a particular bank you are now stuck. The bank said no, now what? If you are working with a Mortgage Broker, if a lender says no a good mortgage broker will immediate start shopping around to find you another lender. The second lender may or may not offer as good a rate (or other options) as the previous, but at least you are not stuck.

I hope that part 1 and 2 of this series “How Do I Buy a Home?” have provided you some insight into the home buying process. There are many financing options available to try and get you into a home. If you have any questions or want to discuss anything in this article any further, please feel free to contact me. I really want to help answer your question “How Can I Buy a Home?”