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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

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

Additional Terms

Land Banking

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Land Assembly

Land assembly is the process of acquiring and consolidating multiple adjacent parcels of land under one ownership, typically for redevelopment or. more

Joint Venture

A joint venture in real estate is a partnership between two or more parties to develop, own, or operate a property or project, sharing risks, costs,. more

Infill Development

Infill development is the process of building new housing, commercial buildings, or amenities on vacant or underutilized land within existing urban areas.. more

Inclusionary Zoning

Inclusionary zoning is a municipal planning tool that requires or incentivizes developers to include a percentage of affordable housing units in new. more

Impact Fees

Impact fees are charges levied by municipalities on new developments to offset the cost of additional public infrastructure and services required by. more

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