Where to get a loan?
You have multiple decisions to make when you begin your loan search:
• Contact a mortgage broker to assist you with locating the best deal
• Approach a financial institution or lender directly
Mortgage Broker
Mortgage brokers are individuals who specialize in home loans. Mortgage brokers will compare loan products and negotiate on your behalf, with banks, credit unions, and other lenders, to arrange a loan that best suits your needs.
Mortgage broker services are generally paid for by the lender, in the form of a finder's fee, however, this is not always the case. Your mortgage broker may ask for compensation.
Using a mortgage broker can lead to more favourable rates because they may be able to negotiate better deals through their connections.
Your biggest risk of working with a mortgage broker is trusting that they have the experience, industry knowledge and connections to find you the best deal.
Types of Financial Institutions
There are three main types of financial institutions.
• Banks
• Credit Unions
• Private Lenders
Each institution will lend money in the form of a loan and may offer a variety of other financial services. They will each have their own lending criteria that you must qualify for.
Banks
Banks are the traditional and most common institutions used for borrowing. They are federally operated. Today, when a bank qualifies you for a mortgage, they must conduct a stress test.
Credit Unions
Credit unions are privately operated and member owned. They operate within a closed network of individuals usually organized on the basis of profession, religion, geographical community or cultural background. Many require you to be related to a member or invited in order to join. Often, credit unions have more flexibility. Credit unions are not required to use the stress test when qualifying individuals.
Private Institutions
Private Institutions consist of private lending companies and individuals. They are often more lenient in their qualifying process as they are not restricted by the same rules as traditional banks. You may be able to afford a loan but be declined by banks for various reasons such as inability to show steady income as a small business owner or lack sufficient collateral. In these types of situations, a private institution may be willing to look more closely into your individual circumstances when qualifying you. As well, for individuals who have poor credit history, a private lender may be willing to take a chance on you. As a result, riskier individuals may be approved in exchange for paying higher rates. Private Institutions are not required to use the stress test when qualifying individuals.