Exit Strategy: How to Move from a Private Mortgage to a Bank

Why the Exit Strategy Matters

A private mortgage is a bridge, not a destination. This is the most important concept in private lending, and it should guide every decision you make from the moment you take out the loan.

The math matters. Private mortgage rates are meaningfully higher than B-lender rates, which are in turn higher than bank rates, and private mortgages typically carry additional lender and broker fees that bank financing does not. On a typical mortgage balance, that gap can add up to thousands of dollars in extra cost over a single term. Every additional term you spend in private financing is money that could be staying in your pocket.

The exit strategy is the plan that gets you from where you are today to where you need to be to qualify for conventional financing. It should be discussed, documented, and agreed upon before you sign your private mortgage commitment. If your broker has not raised the topic of exit strategy, that is a concern worth addressing. For a broader overview of how private mortgages work, see our complete guide.

The Rehabilitation Timeline

The timeline for transitioning from private to conventional financing depends on the reason you needed private financing in the first place. The table below reflects Good Home Capital's general guidance, based on typical lender practice as of October 2026. It is not a guarantee, and a lender's own policies control the final decision; your broker can tell you where you stand.

These timelines assume active effort. Simply waiting for time to pass without taking steps to improve your credit and financial profile will not move you forward.

Credit Rebuilding Steps

Credit rebuilding is the foundation of most exit strategies. Even if credit was not the primary reason for your private mortgage, improving your score opens doors to better rates and more lending options.

Step 1: Know Where You Stand

Pull your credit reports from both Equifax and TransUnion. You can get a free copy of your report from each bureau, online or by mail. Review the reports for errors, outdated information, and accounts you may not recognize. Dispute any inaccuracies in writing.

Step 2: Establish Active Trade Lines

Lenders want to see that you are currently managing credit responsibly. If you have no active credit products reporting, start with these:

• Secured credit card: Available from most major banks with a refundable deposit. Use it for small recurring purchases and pay the full balance every month.
• Credit-builder loan: Some credit unions and financial institutions offer small installment loans designed specifically for credit rebuilding.
• Secured line of credit: If available, this adds a revolving trade line to your report.

The goal is to have at least two active trade lines reporting to both credit bureaus. Twelve months of clean history is enough to start qualifying with some B-lenders; most A-lenders want to see two or more years of history before offering their best terms.

Step 3: Maintain Perfect Payment History

Payment history is the single largest factor in your credit score. One missed payment can set your timeline back months. Set up automatic payments for every credit product you have, including your private mortgage (even though it may not report to the bureaus, a default creates much bigger problems).

Step 4: Manage Utilization

Keep your credit card balances below 30% of the limit. If you have a $500 secured card, keep the balance below $150. High utilization signals risk to future lenders, even if you pay the balance in full each month.

Step 5: Avoid New Negatives

While rebuilding, any new collection, judgment, or missed payment will damage your progress disproportionately. Be vigilant about every obligation, no matter how small. A $50 unpaid phone bill that goes to collections can derail months of rebuilding work.

What Banks and B-Lenders Look For

Understanding what conventional lenders require helps you target your efforts effectively.

B-Lender Requirements (Typical)

• Credit score: Varies by lender. B-lenders generally work with a wider range of scores than banks and will often consider applicants who would not qualify at a bank.
• Credit history: At least 12 months of clean history with no new derogatory items
• Income: Some flexibility on documentation, but evidence of income is required
• Debt service ratios: More lenient than banks, but still assessed
• Property: Must meet the lender's property standards (appraisal required)
• LTV: Mortgages above 80% of the property value generally require mortgage insurance2

A-Lender (Bank) Requirements (Typical)

• Credit score: Lenders set their own minimums. For an insured mortgage, CMHC requires a score of at least 600 for at least one borrower, and many lenders look for higher scores2
• Credit history: At least 24 months of clean history, two active trade lines with 2+ year history
• Income: Fully documented (T4 employment income, or 2 years of T1 generals/NOAs for self-employed)
• Stress test: Must qualify at the greater of the contract rate plus 2% or 5.25%3
• Debt service ratios: GDS up to 39% and TDS up to 44% are CMHC's maximums for insured mortgages; lenders set their own limits2
• Property: Standard residential property in good condition

When to Start the Refinancing Process

Timing is critical. Start too early and you waste time on applications that will be declined. Start too late and you risk running out of time before your private mortgage term expires.

Recommended Timeline

1. 6 months before term end: Meet with your broker to review your progress. Pull updated credit reports and assess where you stand relative to lender requirements.
2. 4 to 5 months before term end: If you are close to qualifying for a B-lender or bank, begin the application process. Allow time for appraisal, documentation gathering, and underwriting.
3. 3 months before term end: If conventional financing is not yet realistic, discuss renewal options with your current private lender. Renewal is typically easier and less expensive than finding a new private lender.
4. 1 month before term end: All arrangements should be confirmed, with lawyers instructed and closing conditions met.

The worst position to be in is discovering at month 11 of a 12-month term that you are not ready to refinance and your lender will not renew. Start early. Check in regularly. Leave yourself a margin of safety.

Common Mistakes That Delay the Exit

We see certain patterns repeatedly among borrowers who struggle to transition out of private financing. Avoiding these mistakes can save you an entire term of additional private mortgage costs.

1. Not establishing new credit immediately. Many borrowers wait months before opening a secured credit card or credit-builder loan. Every month of delay pushes your exit timeline back by the same amount. Open new credit products within the first week of your private mortgage term.
2. Missing a single payment. One late payment on any obligation, even a utility bill, can reset the clock on your "clean payment history" period. Automate everything.
3. Taking on new debt. Adding a car loan or financing furniture during your rebuilding period increases your debt ratios and can reduce your credit score. Avoid new debt unless absolutely necessary.
4. Not filing taxes on time. Banks and B-lenders require recent tax documentation, especially for self-employed borrowers. If your taxes are not filed and up to date, many lenders will not consider your application at all.
5. Ignoring the income documentation requirement. If you are self-employed, you need to start building the paper trail now. Two years of tax returns showing adequate income is the standard requirement. Reporting minimal income to reduce taxes works against your mortgage qualification.
6. Waiting too long to contact your broker. Your broker should be a partner throughout the private mortgage term, not just at the beginning and end. Regular check-ins help identify problems early and adjust the plan as needed.
7. Assuming renewal is guaranteed. Private lenders are not obligated to renew. If they choose not to, you need time to find alternatives. Treating renewal as certain is risky.

Working with Your Broker on the Plan

A good mortgage broker does not disappear after the private mortgage closes. The exit strategy is a collaborative effort that spans the entire term.

What to Expect from Your Broker

• Initial exit plan: A written outline of the steps needed to qualify for conventional financing, with a realistic timeline
• Milestone check-ins: Periodic reviews (at minimum, at the 6-month mark and 3 months before term end) to assess progress
• Credit coaching: Guidance on which credit products to open, how to manage utilization, and what to avoid
• Lender pre-screening: Before submitting a formal application, your broker should informally assess whether you meet a lender's criteria to avoid unnecessary credit inquiries
• Renewal management: If you need an additional term of private financing, your broker should negotiate renewal terms and continue refining the exit plan

Questions to Ask Your Broker

1. What specific steps do I need to take to qualify for a B-lender within 12 months?
2. What credit score do I need to reach, and what is the fastest way to get there?
3. What income documentation should I be preparing now?
4. What happens if I am not ready to exit at term end?
5. How often will we check in on my progress?

Your exit strategy should be specific, measurable, and time-bound. "Improve your credit" is not a plan. "Reach a 620 credit score within 12 months by maintaining two trade lines with zero missed payments and under 30% utilization" is a plan.