January 5, 2025
As a mortgage broker working with self-employed clients, one of the key advantages of alternative lending is its flexibility in accommodating unique financial situations. Traditional lenders often require a steady income from a salaried position, which can pose a challenge for self-employed individuals who may experience fluctuating income or have complex financial structures. However, alternative lenders, also known as B lenders in Canada, are more willing to consider various forms of income, such as business earnings, dividends, or non-traditional income sources, without the stringent documentation requirements of prime lenders.
Alternative lending also offers a more lenient approach when it comes to underwriting criteria. While traditional A-lenders rely heavily on tax returns and proof of consistent income, B lenders understand the nuances of self-employment, including the possibility of write-offs or non-conventional accounting practices that may lower reported income. As a result, they are more likely to work with clients who may not meet the strict requirements for a traditional mortgage but still possess strong equity in their property or have a solid repayment history. Additionally, some B lenders are willing to approve debt service ratios of 50% and even up to 60% in certain situations, which provides greater flexibility for self-employed clients who may have higher debt obligations. This higher debt ratio capacity can make a significant difference for self-employed individuals who might otherwise be restricted by the more conservative thresholds of A lenders. For these clients, B lending offers an invaluable opportunity to access homeownership and refinancing options that would otherwise be out of reach under conventional lending models.
Source: Absolute Mortgage Team