Understanding The Different Types Of Mortgage Lenders
When you consult with a mortgage broker, irrespective of your financial situation and credit score, they are likely to have a lender that is willing to work with you. A mortgage broker can do this because of the extensive network of lenders they have built and the knowledge they have acquired about each type of lender.
At MassMortgageGroup.com, we are often asked why their mortgage application has to be addressed to one type of lender and not any of the others. To help present and future mortgage clients understand why their mortgage application goes to a specific lender, understanding the different types of mortgage lenders is essential.
The primary factor that makes lenders different from each other is their lending criteria. In general, we can categorize lenders into three different categories - “A” lenders or banks, alternative lenders or “B” lenders, and private or “C” lenders. In practice, each lender might have programs that cater to both “A” and “B” borrowers or overlap the lending criteria.
Here’s what makes each lender different.
The six major chartered banks and quite a few institutional lenders that are accessible through mortgage brokers fall into this category. Typically, these lenders have a very tight criterion, which means they have less flexibility. These lenders require more documents, including taxation documents.
They only deal with borrowers with good or excellent credit history or scores and a lower debt to income ratio. “A” lenders offer higher loans to value up to 95% (subject to insurance premium payment) and typically lower rates both fixed and variable with longer terms up to ten years.
“B” lenders or alternative lenders.
Unlike the “A” lenders, these lenders have more flexibility or offer out-of-the-box approaches. They work with clients who have bruised credits and even bankrupt borrowers. When it comes to borrower income, they take a case by case approach or a common sense underwriting. That means they look for evidence to justify a borrower’s situation.
For example, instead of asking for official income documents, they might accept bank statements, contracts, invoices, etc. This is why “B” lender programs are a good fit for a majority of self-employed people and business owners.
On the other hand, the downside of “B” lenders is that they have a limitation in their loan to value up to a maximum of 80%. They also offer a higher rate as they take higher risks, and typically they charge a fee. That being said, how a borrower represents their case to these lenders is vital for a successful application. As a result, working with a mortgage expert is essential.
“C” lenders or private lenders.
Private lenders are on the opposite end of the lending spectrum. Majority of their mortgage approvals do not depend on the borrower’s income and credit situation but on the property status. The only factors that make the deal work with these lenders are the location of the property, its value, and the exposure or salability of the property.
To that end, they always reserve a big chunk of equity on the transaction and hardly go beyond 75% of the loan to value. It goes without saying that due to taking higher risks, their rates are much higher than other types of lenders, and they charge lender fees for administering and underwriting loans.
At MassMortgageGroup.com, we maintain connections with a mix of lenders from all three categories to give our clients the financial opportunity they require. Our team consists of senior mortgage agents and brokers who bring decades of experience to the table. Together, we can easily satisfy any financing needs through a residential first and second mortgage, and commercial or construction financing for small and large projects.