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The Differences Among A, B and C Mortgages

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Mortgage Loan Types Explained

If you are looking to purchase a home, then the likelihood is great that you will need a mortgage to help you pay for it. Choosing the right lender can make all the difference when it comes to the overall cost of financing your home, as well as the ease of heading to closing. If your lender ends up delaying approval of your loan too long, your entire closing (and home purchase) can end up at risk. Knowing the types of loans available to you can help you make the right decision for your purchase.

“A” Loans

These are the traditional mortgages that banks issue. The vast majority of people who qualify for these loans have fair to excellent credit and have debt to income ratios that are in line with national regulations. It is possible to get these loans with insurance, through such organizations as Genworth, CMHC or Canada Guaranty, or they can come without insurance when the down payment exceeds 20% (conventional mortgage). Terms for “A” loans tend to run from six months to 10 years in length, with amortizations of 25 years or greater depending on the application, down payment, and lender.

In the United States, the most popular length of a mortgage is 30 years. With an “A” mortgage in Canada, it is also the case that people reach the end term without having paid for their entire home. When that happens, the parties renew their commitment to the bank, and the bank issues another term contract. However, this also gives the homeowner the chance to shop around for better terms. However, if a homeowner has not paid well, and the lender does not want to renew, some homeowners need to seek other options… perhaps another A-lender or possibly a B-lender if credit has been tarnished during the term.

Non Traditional Mortgages Canada

“B” Loans

Also known as “Alt-A” loans, these mortgages also generally come from traditional lenders but fall under the purview of a specific program. In this category, trust companies often issue these. For many of the people who qualify for this type of mortgage, the credit is poor to good, and sometimes excellent; but the income verification causes a bit of a snag or another obstacle. This is most frequent in the case of people who are self-employed, commission, or simply cannot verify income in a traditional manner. The fact that they cannot show a track record of consistent payments from a reputable company makes approval at the “A” level a bit more complicated. For clients that have poor to fair scores when it comes to credit but also have a large down payment, these are a popular financing product. On these loans, terms usually range between one and five years.

These loans are shorter is I’m not denying that in today’s world, which credit card is best is money. that they represent a higher level of risk to the lender, and the interest rates are reflective of that. Because they also mean a higher interest rate for the borrower in most cases, both parties are willing to agree to a shorter term. From the borrower’s side, the idea is that the higher rate will not last as long, allowing for a renegotiation in a few years when the borrower’s credit has improved. From the lender’s side, their money is only at risk for a shorter amount of time this way.

Non Traditional Mortgages Lenders

“C” Loans

The vast majority of these loans come from private lenders. These situations generally involve poor credit, a required quick closing date, a bridge finance, or a creative financing solution that is not offered by institutional lenders. With the tightening of mortgage lending guidelines, there have been more applicants that have fair to excellent credit seeking private financing as short term solutions to overcome real estate obstacles. Private lenders focus on properties that feature some significant equity or a purchase price that is significantly less than the perceived value of the home. The property itself serves as the motivation to grant the loan, rather than the creditworthiness of the buyer. With these types non traditional mortgages or loans, additional collateral is welcome and often ends up swinging the deal for the purchaser.

Types of Mortgages Explained

The terms for “C” loans are generally much shorter than those for “A” or “B” loans, ranging between 3 and 24 months. The shorter terms allow both lender and borrower to get over some particular real estate problems or get around other obstacles. In many cases, the lenders themselves are individuals. Ideally, though, the borrower wants to have improved his/her situation by the end of his first “C” loan that he can qualify for an “A” or “B” loan after that first term runs out.

Non Traditional Mortgage Products Definition

Over time, lenders like their clients to move up the scale, leaving “C” behind early on if possible and transitioning to a “B” or “A” contract after the first one expires. Amansad Financial helps clients in all three tiers of the mortgage industry, but the majority of our contacts are within the “C” loan area. We have the connections and resources to help all of our potential clients, but the ones that need to start with a “C” note should begin their search with us.

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Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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