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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

Additional Terms

Public Realm Improvements

Public realm improvements are enhancements to public spaces such as sidewalks, parks, plazas, and streetscapes, often funded or contributed by. more

Mortgagee in Possession

A mortgagee in possession is a lender who takes control of a property after borrower default, but before foreclosure or power of sale. The lender. more

Lease Surrender Agreement

A lease surrender agreement is a negotiated contract between a landlord and tenant that ends a lease before its scheduled expiration. Terms may. more

Green Infrastructure

Green infrastructure refers to natural or engineered systems that manage stormwater, reduce heat, and improve sustainability in developments.. more

Escrow Holdback

An escrow holdback is a portion of funds withheld at closing and held in escrow until specific conditions are met, such as completion of repairs,. more

Underused Housing Tax

The Underused Housing Tax (UHT) is a federal annual 1% tax on the value of vacant or underused residential property owned by non-resident,. more

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