What is the catch when using a B lender?

There are definitely catches to using a B lender. The first one: you need to have a “substantial” down payment. When we say “substantial”, it generally means at least 25% down. So that would mean a maximum purchase price of $1M if you are putting $250K down.

The other main catch is: it’s more expensive! The rate is not as good as an A lender and they usually charge a lender fee which vary, but you’re usually looking at at least 1% of the mortgage amount so in this example, $7500 for the “privilege” of borrowing the money. 

This next part isn’t really a catch, it’s more so just to make it affordable. They will extend the amortization over a longer period of time to reduce the monthly payments. Normally the A lenders will keep the amortization period to 25-30 years max. B lenders will extend it up to 40 years to help you qualify. 

We generally try to use a B lender only when absolutely necessary and only for short periods. For example, we would do a 1-2 year term, and then move to a better bank afterwards when we qualify well, and shorten the amortization at that time.