TRENDING: Hullmark To Manage Redevelopment Of Jane Finch Mall

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

Budgeting

Budgeting in real estate refers to the process of forecasting and managing income and expenses associated with owning, operating, or developing a property.. more

Tenant Improvements

Tenant improvements refer to custom modifications or build-outs made to a leased space to suit the tenant’s operational needs, often negotiated as. more

Highest and Best Use

Highest and best use refers to the reasonably probable use of a property that results in the highest value, provided it is legally permissible,. more

Gross Lease

A gross lease is a commercial lease where the tenant pays a fixed rent, and the landlord covers most or all operating expenses such as property. more

Brownfield

A brownfield is a property that was previously used for industrial or commercial purposes and is now vacant or underused, often requiring. more

Record of Site Condition (RSC)

A Record of Site Condition (RSC) is a formal document filed with a provincial environmental authority certifying that a property meets required. more

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