A Lender or B Lender? Do you know the difference?
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 so you can make an informed decision.
A Lenders
Unlike what some big banks will tell you – lenders outside the big 5 are still A lenders! An “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. They use your credit, income, and debt to determine qualification. A Lenders can lend on purchases with as little as 5% down for a client with good credit and job history.
B Lenders
B lenders are non-prime or subprime lenders. They offer higher interest rates, but if you have poor credit, this may be the only option for getting a loan. B lenders have alternative products to help you qualify, and they can charge fees, extend ratios, and accept non-traditional income. 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 – which is why the rates are a bit higher.
Haventree, National Optimum, and MCAN Discovery.
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. Most monoline lenders fall into the A category, but a couple of them have a B division. B2B, CMLS, Home Trust, 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. You will need to provide more information about yourself and your business. Self Employed with an A lender involves using the income averaged across two years. B lenders can be as easy as providing 6 months of invoices and bank statements to annualize income.
| Lender Category | Documentation Required | Standard Term |
|---|---|---|
| A Lender | Average of 2 Years of T4’s or T1’s | 1-5 Year Terms |
| B Lender | T1’s or 12 Months of Bank Statements | 1-3 Year Terms |
GDS/TDS ratio higher than 39/44%
GDS/TDS Ratio is a measure of your debt to income ratio used to determine risk. GDS (Gross Debt Service) takes into account your Principal, Interest, Taxes and Heat (PITH)—and strata if applicable. TDS (Total Debt Service) takes into account all of the above (PITH) as well as other monthly debts like car loans, student loans, credit cards, etc. 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 B lenders will consider GDS/TDS up to 60/60% when credit is above 600.
You may still be able to qualify
Your income must be sufficient to support the size of your loan, which is usually repaid over 25 years or more. Even if you’re self-employed without access to traditional forms of collateral like property ownership or wealth management vehicles, there are factors that affect your eligibility. Reach out today to see where you qualify!