With rising interest rates comes rising mortgage payments and the fall out of that is a higher debt servicing ratio (the percentage of your income you are using to pay your housing costs). Each classification of lender has a debt servicing guideline they have to adhere to in order to fund a mortgage.
So where do you land?
‘A’ lenders are looking for strong clients that show stable income (2+ years with their employer, or 2+ years in their position/field) and credit (no late payments, collections or proposals/bankruptcies in the past 2 years). These lenders are typically looking for a credit score above 650. They will allow you to use up to 39% of your gross income to pay your mortgage payment, property taxes and heat.
So what happens when you don’t qualify with an A lender?
‘B’ lenders are much more flexible. They’ll allow you to use up to 50% of your gross income (in some cases up to 60%) to cover your housing costs. These lenders are more concerned with the marketability of your home, than the stability of the client. For this reason they typically restrict their funding location to be 100km from a city centre of 100k population.
And lastly, we have private lenders. These lenders (we call them ‘C’ lenders) are not concerned with affordability on paper. They’re a “makes sense” lender. These lenders will consider income that other lender classifications will not (ie: EI income where there isn’t a history, cash income, part time income with no prior history, etc).
As a mortgage brokerage our goal is source the best lender that meets your needs and goals.