While the majority of mortgage applications will fit the criteria for a traditional mortgage with an A-lender, some may not qualify. That doesn’t mean you don’t have options. Alternative lending offered by PHL can provide mortgage solutions for residential property buyers who do not meet the lending guidelines of traditional banks, and for deals that require a quick turnaround.
Mortgage Investment Corporations (MICs) can be an excellent tool in a mortgage broker’s toolkit. As the manager of this type of fund, PHL can offer your clients additional options when standard routes fall short. Yet, alternative lenders aren’t just a last resort—for some clients and purchase situations, an alternative lender may be your best option.
When should mortgage brokers consider an alternative lender for their client?
Where traditional lenders view applicants through strict guidelines that often fail to see the full picture, alternative lenders provide more flexibility. Alternative lending through PHL may be a good fit for your client if they:
- Are not conventionally employed: for clients with variable income, who are self-employed, whose income is commission-based, alternative lending may be a better option.
- Temporary credit setback: temporary financial setbacks–such as divorce, layoffs, and health events–happen, and may affect a borrower’s credit. Alternative lending may provide financing options for these borrowers.
- Are buying a new home before selling their current home: If your client is looking to purchase before selling their current house, or has found a home that requires renovations before they can move in, an alternative lender may provide short-term financing.
- Need bridge financing: Some deals are threatened by timing issues, not financial ones. Alternative lenders may help provide bridge financing to ensure timing doesn’t cause the deal to fall through.
- Are purchasing a property under tight timelines: Acquiring a mortgage from a traditional bank can be a lengthy process, often taking weeks to close. If your client doesn’t have that kind of time to wait, alternative lenders may be able to provide a much faster turnaround.
How to know if your client is a good fit for alternative lending?
Alternative lenders can be a strategic partner when working with unconventional buyers or properties. PHL offers brokers access to flexible credit score requirements, no debt-to-income ratio constraints, and a simplified process. If you think your client may be a good candidate for alternative lending, here are a few questions to consider:
- Does your client have a well-considered exit strategy?
- Can their income still be demonstrated?
- Is the property your client is considering unique or difficult to evaluate, such as a rural property, mixed-use, or a much older home?
- Does your client have an existing real estate portfolio they are looking to scale?
What criteria do alternative lenders consider about a buyer?
Unlike traditional banks, which operate under strict criteria and rigid guidelines, PHL takes a more holistic view of applicants, striving to offer greater flexibility while still operating under strict underwriting criteria and guidelines. We generally consider the following criteria to make sure the deal makes sense for the broker, the fund (i.e., applicable alternative lending entity), and the borrower’s long-term financial health:
- Equity and assets, including other properties
- The borrower’s plan for the property
- A defined exit strategy
- Net worth and overall financial position
- Liabilities and outstanding obligations
- Credit history, where relevant
How does alternative lending work? What is the process of acquiring alternative financing for a residential property?
At PHL, we take a people-focused approach and keep our process straightforward. If you believe your client meets the criteria for alternative lending, here is what you can expect when partnering with us:
- Step 1: Submit your proposal. Our team is available to discuss your client’s needs and suitability via phone or email, or you can submit the proposal online here.
- Step 2: Once your proposal has been received, we will request your client’s credit bureau report for assessment to review. We review credit history as part of the file, but borrowers do not need to meet a minimum credit score to be considered. We keep our documentation requirements as streamlined as possible, and most residential deals do not require income statements.
- Step 3: The property will be appraised by one of our approved partners to confirm its value and suitability.
- Step 4: If your client’s assessment and appraisal meet our guidelines, PHL will move forward with a commitment letter. Knowing how quickly the real estate market moves, we offer 24-hour commitments and feedback.
- Step 5: To complete approval, outline the purpose of the funds, your client’s repayment plan (exit strategy), and any other relevant details. This ensures we understand your client’s needs and goals.
Should mortgage brokers consider alternative lending for their clients’ residential property purchase?
For most clients, a traditional mortgage from an A-Lender is suitable. However, for the clients who do not meet the strict guidelines and criteria, alternative lending can provide an exceptional path forward when strict bank criteria stand in the way.
Frequently Asked Questions
- When should a mortgage broker consider an alternative lender for a residential client?
Mortgage brokers may want to consider an alternative lender when a client does not meet the lending guidelines of a traditional bank but still has a viable financing opportunity. Common situations include self-employment, temporary credit challenges, purchasing a new home before selling an existing one, requiring bridge financing, or needing to close on a tight timeline. - Can a client with temporary credit setbacks still qualify for alternative lending?
Potentially, yes. Alternative lending may provide financing options for borrowers whose credit has been affected by temporary financial setbacks, such as divorce, layoffs, or health events. Credit history is still reviewed as part of the underwriting process, but it is considered alongside other aspects of the client’s overall financial position. - What does PHL look for when assessing an alternative lending application?
PHL considers a range of factors during underwriting, including the borrower’s equity and assets, the intended use of the property, a defined exit strategy, net worth, outstanding liabilities, and credit history, where relevant. - Is alternative lending only used when a traditional mortgage application has been declined?
Not necessarily. While alternative lending can provide options for clients who do not qualify for traditional financing, it may also be appropriate for borrowers with unique circumstances, such as tight closing timelines or the need for short-term bridge financing. In some situations, an alternative lender may be the most suitable option from the outset. - What is the first step in the alternative lending process with PHL?
The process begins when a mortgage broker submits a proposal to PHL. From there, PHL reviews the client’s information, requests a credit bureau report, arranges for a property appraisal, and assesses the application under applicable underwriting guidelines before determining the next steps.
Disclaimer
This blog article (“Blog”) is for information purposes only, and may not reflect current legal developments or any updates to industry terminology. Accuracy of information in this Blog is not guaranteed. “PHL” refers collectively to PHL Capital Corp., MortEq Lending Corp., and Oakhill Lending Corp.While all information in this Blog is provided in good faith, PHL, and any affiliate, subsidiary or related party of PHL Capital Corp., make no representation or warranty of any kind, express or implied, regarding the accuracy, validity, reliability, or completeness of any information in this Blog. Readers are encouraged to consult independent legal, tax, and accounting advisors prior to making any financial decisions. PHL Capital Corp. is a licensed mortgage brokerage in British Columbia, Alberta, and Ontario (Ontario licenses #13546 and #13570).
