Alternative mortgages have a reputation as serving clients who can’t get traditional financing.
However, that’s not always the case.
Alternative mortgages, like those offered by Calvert Home Mortgage Investment Corporation, are not just for “challenged” clients. They are not one-size-fits-all. In fact, they can be an appropriate solution for clients throughout the credit spectrum and can be used by Mortgage Brokers to support a variety of clients and mortgage lending opportunities.
We’ll explain how alternative lenders can support Mortgage Brokers and their “bankable clients,” or clients with excellent credit, strong income, great character, adequate capital, and favourable conditions, with a few examples.
What’s a Bankable Client?
When we talk about a “bankable client,” here’s what we mean:
- Individuals or businesses who can access some form of traditional financing from a bank.
- Those with credit scores sufficient to obtain a loan.
- Those who can service and repay loans and have good character.
Alternative lenders such as Calvert Home Mortgage are often considered an option only for those who can’t go to a bank for a mortgage. That’s not the case, and this misconception can sometimes impede the Broker and borrower from accessing the appropriate solution for their needs.
Interim Purchase & Bridge Financing: Alternative Mortgage Solutions
Calvert Home Mortgage provides a wide variety of alternative short-term mortgage solutions. Today, we’re highlighting our Interim Purchase and Bridge products.
An Interim Purchase is financing a home purchase with a confirmed exit strategy within 12 months. The most common and appropriate uses are to resell for profit or refinance. This approach is especially beneficial in scenarios where:
- A quick closing is needed
- There is a notable difference between the purchase price and the appraised value
- You want to reduce the required down payment without relying on an insured mortgage
For example, in a scenario where the purchase price is $500,000, and the appraised value is $650,000, traditional banks will only lend on the purchase price, limiting the buyer’s access to funds. Even with a lower down payment option on a conventional mortgage, it comes with insured premiums or prepayment penalties, adding to the overall cost. Additionally, the closing process can take weeks, which may not work for time-sensitive investments.
However, with our Interim Purchase mortgage solution, buyers can access more capital upfront because we lend on the higher appraised value of $650,000. This option also provides the flexibility of down payments as low as $10,000 in Alberta and $20,000 in Ontario and a fully open mortgage, meaning buyers can avoid prepayment penalties. Once the property is secured with our financing, buyers can either easily resell for a profit or refinance with a traditional bank, leveraging the higher value for better terms.
This article also features our Bridge mortgage solution, a type of short-term mortgage solution that covers the time between the sale of one home and the purchase of another for clients who require temporary financing for the down payment or other urgent needs. At Calvert Home Mortgage, we consider a Bridge mortgage, even if your client’s property is still in the process of being listed on the MLS with a Licensed Real Estate Agent. Bridges can also be used if your client has a sale contract in place with a closing date after the purchase of the other property.
When Do Clients Need Alternative Mortgages?
There are times when clients need an alternative solution, specifically an Interim Purchase mortgage. For instance, a business owner who doesn’t declare much income or who has money invested in their business that can’t be immediately withdrawn.
One example is a business owner who doesn’t declare much income and, therefore, can’t qualify with a traditional A or B lender. Another example is an individual with money invested in their business who can only withdraw it over the course of a few years.
An Interim Purchase mortgage is a solution in both of these examples:
- These are intended to be short-term loans.
- They are fully open with no payout penalty.
- The payments required are interest only.
That makes this type of solution ideal for borrowers of all categories who need short-term financing.
Here are more examples of how alternative mortgage solutions can be used for “bankable” clients.
Clients Needing Quick Financing
An Interim Purchase can be used as a short-term solution while a borrower works to change their circumstances to qualify with a more traditional A or B lender.
Here’s a recent example of how Calvert Home Mortgage supported a client:
- A client with excellent credit and a strong income approached us for a quick close. He needed an extremely time-sensitive loan to close the deal on time and avoid losing his $35,000 deposit.
- Despite his financial strengths, his self-employment prevented him from securing traditional financing in time to close the deal.
- Calvert Home Mortgage promptly processed the deal by ordering an in-house valuation, reviewing all the supporting documents, and issuing a Commitment Letter within 3 hours of receiving the application.
- The deal was funded within one business day, allowing the client to close the deal on time without losing his deposit on the purchase.
- Since then, the client has successfully refinanced the mortgage with a B lender and fully paid out our loan within 37 days.
Clients Who Require a Short-Term Loan
Another example is a “bankable” client with excellent credit and a great income to support a loan. This client wanted to secure the purchase of a new build they intended to sell right away without any improvements or a change in the use of the property. Banks typically don’t provide a loan for this type of situation.
Since the loan was short-term and because we could lend on the as-is value of the property, Calvert Home Mortgage was the best option:
- To assist the client, we performed an internal valuation of the property at no cost and reviewed the condo documents internally to ensure there wouldn’t be any complications.
- This comprehensive review process allowed us to lend confidently based on the current market value of the property, enabling the client to make a smaller down payment.
- We were able to lend on the current market value of the property and provide flexible pricing options.
- We supported the client in choosing the most suitable interest rate and down payment options.
- The client purchased the property and quickly sold it for a profit.
- The client paid off our loan within 22 days without a prepayment penalty.
Clients With Closing Dates that Don’t Match
A third example is a loan to support a client when closing dates don’t match. Calvert Home Mortgage can provide short-term financing that covers the time between the sale of one home and the purchase of another. These are known as Bridge mortgages.
Here’s when a Bridge mortgage can help a client:
- There’s a gap between taking possession of a new property and selling an existing one.
- The client wants time between closing dates to move and transition into the next phase of their life. For example, if they would like closure as they move out of a family home and would like additional time to pack and process some emotions that may arise.
- A Real Estate Investor client involved in flipping properties or in a BRRR (Buy, Renovate, Rent, Refinance) business can use this option to move quickly to buy a property in a hot market.
- A hot market could make it necessary to place an offer on a new home before an existing property sells.
- The client wants time and resources to make upgrades to the new home before moving in. Or perhaps they would like to purchase some new furniture or hire extra childcare – having funds available could support a more effortless moving experience.
- The client needs help to refinance, for instance, if they can’t qualify for a mortgage until the other mortgage is paid out.
A Bridge mortgage enables a “buy now, sell later” situation to bridge the gap between a purchase and a sale or refinance.
In the case of an individual homeowner, the equity in the current home is used to make a down payment on the new home rather than waiting for the existing property to sell. Once the property sells, the Bridge mortgage is paid off from sale proceeds or through refinance. This option isn’t always available through a traditional bank.
Alternative Mortgage Solutions are For Every Client
If you’re a Mortgage Broker, you likely serve a variety of customers, including bankable clients with excellent credit and income who can’t qualify with an A or B lender.
Here’s how you can support your clients by working with Calvert Home Mortgage:
- Do more deals with fast funding, often in as little as 1-2 business days in Alberta and 1-3 business days in Ontario upon receiving all required documents.
- Down payment options are as low as $10,000 in Alberta and $20,000 in Ontario.
- Flexible solutions and reasonable terms, even for clients working to improve their credit scores.
- We do our own in-house valuations, so in most cases, clients don’t have to seek external appraisers.
- In Alberta, we use our own internal legal documentation, which is sent to the borrowers’ lawyer to expedite the process.
- Most of our loans are fully open, so clients can pay them off anytime without penalty.
If you’re a Real Estate Investor, these are all advantages to your business as well. In a flip situation, when multiple properties are at play, Calvert Home Mortgage can come up with creative solutions to support your business. A fast turnaround time to fund a deal helps flippers achieve what they’re looking to get done.
The Bottom Line
Alternative mortgage solutions are not one-size-fits-all and are not intended only for “challenged” clients who can’t get traditional funding. Mortgage solutions from alternative lenders like Calvert Home Mortgage can support various clients.
Calvert Home Mortgage has supported Mortgage Brokers, Real Estate Investors, and homeowners since 1975, with operations in Alberta and Ontario. Contact one of our experienced underwriters for more information on alternative mortgage solutions, such as Interim Purchase, Bridge, Flip/BRRRs, and more, for all your client needs.
Ardith Stephanson is a freelance writer and journalist who writes on a variety of topic areas.
