The mortgage industry has evolved considerably over time and has moved beyond the traditional bank-only lending options to include additional mortgage solutions for all types of borrowers. These alternative financing options cater to borrowers looking forward to increased flexibility in meeting their mortgage needs.
When discussing the various categories of mortgages, we usually distinguish between three types. These include A-lender mortgages, B-lender mortgages, and private lender mortgages. This blog discusses what is a B-lender mortgage and its pros and cons.
What is A B-Lender Mortgage?
A B lender mortgage is funded by non-traditional banks, including trust companies, credit unions, etc. Compared to the other types of mortgages, these provide the borrower with a common-sense lending approach, higher affordability, and flexibility in the types of income used to qualify.
However, the rates offered to the buyers are reasonably priced, considering the overall flexibility offered, but these are generally higher than some major tier A-banks.
The Pros of Choosing a B Lender Mortgage
When making a decision, several pros and cons are associated with choosing a B Lender mortgage. Following is a list of pros and cons related to approaching the B Lender category for your mortgage needs.
B-lender mortgages provide additional options for borrowers who might not be eligible for traditional bank mortgages for several reasons. These reasons may include their income type, high debt-to-income ratios, poor or thin credit, and non-conventional down payment sources.
Shorter Time Span
B Lender mortgages usually come with shorter terms of approximately one to three years, which are responsible for allowing borrowers to improve their financial situation. At the same time, these enable borrowers to switch back to traditional banks without any penalties associated with longer mortgage terms.
Compared to other mortgage types, B-Lender mortgages have less strict qualification guidelines. They are also relaxed regarding debt-to-income ratios, credit scores, and non-traditional sources of income. This criterion makes it easier for the borrower to qualify for a mortgage and yields higher mortgage affordability.
The Cons of Choosing a B Lender Mortgage
The following are the disadvantages of a B-lender mortgage:
The costs associated with a B Lender mortgage can be higher in terms of interest rates and mortgage closing costs. However, these mortgages are often short-term or mid-term solutions to meet immediate mortgage financing needs. Furthermore, the trade-off is usually deemed worth it for several borrowers.
Requires Property Appraisal
Another possible drawback of opting for a B Lender mortgage is the requirement of a property appraisal regardless of the need for purchase or refinancing. On the other hand, A-lender mortgages do not require an appraisal.
It might be considered a major con, but it is still added to the list of closing. At the same time, the costs associated with appraisal are often outweighed by other costs associated with closing a home.
Another potential disadvantage of a B Lender mortgage revolves around a 20% minimum down payment requirement. This might not seem to be a major issue for those looking forward to refinances, but it is a problem for buyers with a set down payment requirement.
Why Choose B Lender Mortgages?
A-lenders usually advertise their insured mortgage rates, but B-lender mortgages tend not to publish their rates to the general public. The main reason for doing so is that B Lender mortgages tend to adopt a customized approach to each application.
At the same time, unique circumstances are also considered to provide increasingly reasonable mortgage offers. Therefore, it can be assumed that there is no concept of a one-size-fits-all approach with B Lenders. These reasons often attract more consumers towards B Lender Mortgages.