This type of lender usually refers to one of the big banks like CIBC, RBC, Scotiabank, BMO, and TD. This is where you will often find the best rates and most competitive mortgage terms. They are usually looking for credit scores above 600 but might lend for a lower score for a lower loan to value.
Many people start out working with A lenders when they are purchasing rental properties, but eventally move on to other lenders as the nmumber of properties in their portfolio grows.
Depending on your strategy you may start with a B lender, especially when you are doing many renovations to a property and then moving on to an A Lender, after the improvements have been completed. Many B lenders are more flexible when it comes to work being completed on a property.
A Lenders often have caps when it comes to rental properties and a borrower (Individual or Couple). Either they will cap the number of properties that they will lend for a borrower. Or they have a cap on the total amount of mortgages that they will lend to you. For example Scotiabank had a 2.5 million dollar hard cap when I was working with them, and was turned down not because of my quality as a borrower but the fact that I had maxed out my room for borrowing from this institution. The problem is most people that you will deal with at the bank will not be aware that this cap even exisits because they don’t often deal with investors that breach this cap.
Borrowers who don’t meet the traditional lending guidelines of an A Lender fall into B Lenders. They will usually lend to borrowers with credit scores as low as 500. This could mean that the borrower his poor credit, the property needs extensive renovations, borrower is self-employed, or has alternative sources of income. This could also be a borrower that was recently bancrupt or under a consumer proposal. Usually B lenders require a larger downpayment and/or a higher interest rate than can be found through an A lender. Using a B lender is often a short term solution, until the borrower can re-qualify with an A lender.
The type of lenders you often find here are trust companies and credit unions. An example of a B Lender is Home Trust or Street Capital.
Each lender evaluates the property purchase differently, so its important to work with a mortgage agent or broker that has experience with a few different B lenders, and can coach you through the process and requirements. These criteria could mean that they don’t lend in smaller towns , where you might be better off using a local credit union. Or they will not lend against some types of housing like mobile homes, student rentals or retirement residences.
A or B Lenders
Whether you are working with A or B lenders make sure to keep in mind what your next move is going to be. Make sure to structure your financing in a way that allows you to continue to purchase more property, and does not block you because you are overleveraged on a particular property. You should be working with a trusted mortgage agent, broker or bank mortgage specialist that understand your portfolio goals rather than just focusing on the transaction.