TIMELINE: The Events In The Ongoing $10M iPro Realty-RECO Scandal

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

Recourse Loan

A recourse loan is a type of loan where the lender can pursue the borrower’s personal assets, beyond the collateral, in the event of default.. more

Pari Passu

A pari passu clause is a contractual provision ensuring that multiple creditors share equally in repayment priority from the borrower’s assets.. more

Non-Recourse Loan

A non-recourse loan is a type of loan where the lender’s only remedy in case of default is to seize the collateral property; the borrower is not. more

Net Operating Income

Net operating income (NOI) is the total income generated by a property after operating expenses are deducted but before taxes and financing costs.. more

Mechanic's Lien

A mechanic’s lien is a legal claim by a contractor, subcontractor, or supplier for unpaid work or materials provided for a property.. more

Lis Pendens

Lis pendens is a legal notice filed in the land registry indicating that a property is subject to ongoing litigation that may affect its title.. more

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