NON-CONFORMING & ALTERNATIVE MORTGAGES:

Are you self-employed, on commission, and/or cannot adequately document your income?  Do you have a good credit history, but you still have a low credit (Beacon) score?  Have you been bankrupt before, and/or a few credit challenges?  If yes, you may need a specialist like me to find you an alternative mortgage solution.  There are many other reasons you may need a non-conforming or alternative mortgage programme.  To better explain what non-conforming mortgages are, I shall describe what conforming means.

For residential mortgages, conforming mortgages are usually referred to as low-risk triple-A ones.  That means that you will need to have a very good credit record, steady employment in the same profession or, sometimes, with the same employer for at least three years. And the property you own or are buying is acceptable.

A good credit record reflects on your character.  It usually means, among other things: -

• You have established unblemished credit track records with at least three creditors in the past 24 months.  That means no late payments whatsoever.
• You enjoy fairly good credit limits with mainstream creditors like banks (credit cards and lines of credit), major oil companies, department stores (like Hudson Bay), etc., and you are not in the habit of maxing out your credit limits (the 80% rule).  Credits with financing companies may count against you.  Be aware that some store cards (e.g. Future Shop) are actually finance company credit cards.
• You have never declared bankruptcy and you do not have any collections registered against you in the past.

Steady employment means you may have a reliable source of income to repay the mortgage according to the agreed terms.  If you are employed, you will need to provide evidence, usually in the form of an employment letter from your employer stating how long you have been working there and how much you are making.  Furthermore you will need to provide current pay stubs in support of your employment.  If you are self-employed, you will need to provide evidence that you have been self-employed for at least three years and you can document your actual income.  The usual documentations may include business licenses, tax filings, Notices of Assessment (NOA’s) from Revenue Canada (showing no taxes owing), etc.

You should also be aware that to qualify you, the lender would use certain debt servicing tests.  They are usually referred to as the GDS/TDS.  You can find out more about these in my free eBook.

Non-conforming lenders will still require the same kind of documentation and information, and sometimes more.  It is just their criteria and policies may be more relaxed.  They will examine the property in question more carefully.  Alternative lenders, on the other hand, may be strictly equity lenders.  They don’t care about your income.  What is really important is how much equity you have in your property?  Their pricing may depend entirely on this and, of course, your credit history.
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So, what about the property?  A properly zoned property is a must.  Single detached house, duplexes, townhouses and rental properties with four units or less in urban centres usually qualify.  There are various limitations to condos – as to liveable area and type of construction, etc.  What will be acceptable would vary from lender to lender.  Non-conforming and alternative lenders are more picky.  They will want to know how the property fits into the neighbourhood, whether it is well maintained; and how marketable it is.  A very involved appraisal that meets their criteria is always required.

Commercial mortgages are similar.  Whether the deal is conforming (or bankable) will depend on the credit-worthiness of the principle owners, the ability of the property to generate sufficient cash flow plus a comfortable margin to service the debt, and the type of commercial property involved.

Basically, your mortgage application is non-conforming when you and the property fall outside of the best risk categories set up by the major lenders in Canada and/or not acceptable to the two mortgage insurers – CMHC and Genworth (previously GE Capital).

Just because you do not quite fit into the narrow low-risk box, it does not mean you will not qualify.  You may need to do more shopping around, and that is why I can help you.  After I have a chance to assess where you stand, I will know fairly quickly which lender may qualify you.  That saves you a lot of time and frustration.