Alternative Financing

Explore what alternative financing means in Canadian real estate, who it's for, and how non-traditional lenders help buyers access the market.

Alternative Financing

May 22, 2025


What is Alternative Financing?

Alternative financing refers to non-traditional methods of obtaining funding for a real estate purchase, typically used when a borrower does not qualify for a mortgage through a major bank or institutional lender.

Why Alternative Financing Matters in Real Estate

In Canadian real estate, alternative financing plays an important role for buyers with limited credit, unconventional income, or other factors that make them ineligible for traditional mortgages.

Alternative financing sources include:
  • Private mortgage lenders
  • Mortgage investment corporations (MICs)
  • Credit unions
  • Vendor take-back (VTB) arrangements
  • Rent-to-own contracts
These options may offer more flexible approval criteria but often come with higher interest rates, shorter terms, or increased risk. For example, a private mortgage might be interest-only and have a one-year term with renewal fees.

Buyers turn to alternative financing when:
  • They are self-employed or lack a regular income stream
  • Their credit score falls below traditional thresholds
  • They are purchasing unconventional or rural properties
Alternative lenders typically focus on the value and equity of the property rather than the borrower’s financial history. As such, they are often used as a short-term bridge until a borrower can qualify for a traditional mortgage. Understanding alternative financing gives buyers more tools to access the housing market and should be considered with financial advice to manage potential risks.

Example of Alternative Financing

A self-employed buyer with limited credit history obtains a one-year mortgage from a private lender at 8.5% interest, planning to refinance with a bank after improving their credit score.

Key Takeaways

  • Used when traditional mortgage approval is not possible.
  • Includes private lenders, MICs, and VTB agreements.
  • Offers flexible terms but often higher interest rates.
  • Can help bridge financing gaps.
  • Requires careful risk and legal review.

Related Terms

  • Private Lender
  • Mortgage Investment Corporation (MIC)
  • Vendor Take-Back Mortgage
  • Credit Score
  • Non-Conforming Loan

Additional Terms

Bridge Financing

Bridge financing is a short-term loan that helps homebuyers cover the financial gap between buying a new property and selling their existing one.. more

Bridge Loan

A bridge loan is a short-term financing option that allows homeowners to borrow against the equity in their current property to fund the purchase of. more

Firm Offer

A firm offer is a legally binding agreement to purchase a property that contains no conditions. Once accepted, it commits both the buyer and the. more

Foreclosure

Foreclosure is a legal process through which a lender takes ownership of a property when the borrower defaults on their mortgage payments.. more

Closing Costs

Closing costs are the various fees and expenses that buyers and sellers must pay to finalize a real estate transaction, separate from the property’s. more

Assignment Sale

An assignment sale occurs when the original buyer of a property (the assignor) sells their rights in the purchase agreement to a new buyer (the. more

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