Bad Credit Mortgage: Why, Who and When ?
Bad credit mortgage works like a life line for many existing home owners and home buyers.There are a lot of people who are eager to get a mortgage, but have a hard time getting approved because of bad credit. In such cases, it can be very frustrating to get a mortgage if applying thru major banks.
A person with bad credit can try several alternatives outlined in this article.
To understand the concept of bad credit mortgages its important to understand what is considered good credit. Learn more on credit bureau services.
You have good credit when lenders see that you have a clean history of paying outstanding debts. The biggest benefit of having a good credit is best mortgage rates. To achieve or maintain a good credit score, it is advisable to follow the “rule of two”. Here’s how it works:
- Maintain two trade lines, one Visa and one MasterCard.
- Each trade line should have a minimum credit limit of $2,000 and must be at least two years old.
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There must be no late or missed payments within the past 3-4 years on these trade lines.
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What Is Bad Credit Mortgage?
Simply put, these are mortgages for people with bad credit. Those having difficulty applying for a mortgage can choose a lender who caters to people with low credit scores. But before shopping around for mortgage lenders, it’s important to know what constitutes “good” and “bad” credit.
A person’s credit can be considered “bad” if it doesn’t meet the requirements of the lender, usually a bank. For example, all major banks typically require a credit score of at least 780 before they consider a mortgage application for approval.
But this doesn’t mean that people with poor credit should lose hope. A good solution in this situation is to find an alternative lender that offers mortgages for bad credit people. Even better, one can consult with a mortgage broker who can provide lots of alternate lenders to choose from.
Why Is It Hard To Get A Mortgage With Bad Credit?
Due to tight government regulations, Institutional lenders /banks are obligated to reject mortgage applications from low credit score individuals. Applicants with bad credit are seen as ‘high risk’ by the bank when it comes to paying off monthly mortgage payments.
Your first line of defense is to avoid having low credit scores in the first place. However, things aren’t too ideal in real life. People go through life experiences like losing a job, going through a divorce, or tough financial times. This could lead to bad credit, and much worse, a consumer proposal.
To buy a house in Canada with bad credit, you need to be armed with the right tools, resources and advice. If your credit score is quite low example around 550 , it is still possible to get a mortgage if you are willing to put up a higher down payment.
However, if your credit score is below 600 – 670, you are still considered a great risk to prime lenders. It’s better to try your luck with alternative lenders like B lenders and private lenders in this case.
The interest rate is a bit higher along with the associated fees with the term as low as 12 monthly only.
Bad credit mortgages may require 20% or more down payment. This is much higher than the minimum down payment in Canada which is 5%. Lenders who offer mortgage products for bad credit, charge high interest rates, ranging from 3.99% to 4.99% for a 1 year term plus lender fees.
There may be additional commitment fees, brokerage fees, application fees to compensate for the risk they take in lending you their money.
- B lenders
- MIC – Mortgage investment corporations
- REIT – Real estate Investment Trust companies
- Private lenders
We have access to all these lenders and many more private and alternative lenders. We match the borrowers with lenders who prefer to work with scenario like yours and allows you to get to your goals faster.
We provide customized mortgage solutions to borrowers with bad credit by keeping a clear exit strategy in mind.
The best way to get a bad credit mortgage is to start looking at the various options available out there in the market. Better yet, consult with mortgage broker who specialize in bad credit mortgages and will show you a wide array of lenders to choose from.
Typically, a reputable mortgage broker will have access to lenders who cater to those with bad credit. You’ll be able to choose from a wide variety of lenders, compare different rates, and choose an offer that suits you best.
In many instances we were able to match an alternative lender solution and save homes while the property was in power of sale
Can banks refuse a mortgage renewal with mortgage arrears?
Yes they can refuse to renew any existing mortgage if borrower does not make payments on time. Borrowers with history of late mortgage payment are at the mercy of their mortgage lenders.
Its in best interest of a borrower to handle all late payment issues in advance. No lender likes when borrowers miss monthly payments.
If your existing lender refuses to renew your mortgage due to late payments or mortgage arrears, you need to refinance your mortgage with a different lender. To avoid hefty penalties find an alternative lender who is willing to lend you money despite your history of mortgage late payments, non-payments and mortgage arrears.
This is a legal arrangement filed with a Licensed Insolvency Trustee that allows you to settle debts for less than what you owe. And while this is a good legal remedy for eliminating debts and retaining assets, it will severely affect your eligibility for a new mortgage.
Yes, there are some very unique mortgage products that makes it possible for home buyers to secure a mortgage for new purchase while in consumer proposal. Home buyers will need to have a lot more down payment than 5%.
Due to the borrower’s credibility issues, lender prefers to see that all existing amount of consumer proposal settlement has been paid in full and there is no outstanding debt.
Yes, you can get a mortgage loan approved as soon as you are discharged from consumer proposals. In most cases, a higher down payment will be required from an individual after being discharged from consumer proposal.
A cosigner with good credit could be a great help in this case too. Lenders like to see that you are willing to have a higher financial stake, emotional investment and be responsible to pay off the mortgage installments on time.
Yes we got access to alternative lenders who will be happy to take a look at your complete scenario and consider you to refinance or to get home equity loans while in consumer proposals. One thing that could increase your chances of approval for mortgage refinancing is bringing in a co-signer. Preferably, that co-signer should have a stellar credit rating and you got sufficient equity in the property
If you are dealing with this situation, speak to our mortgage delivery guy to find the best alternative for getting a alternative mortgage solutions including private mortgages during/or after consumer proposal.
Does it hurt my credit if I shop around for a mortgage?
You are free to shop around, but you have to do this very carefully. You need to avoid getting hit with ‘hard inquiries’ from multiple potential lenders because this could negatively affect your credit score.
Instead of making direct contact right away with potential lenders, you are better off meeting with a competent mortgage broker who specialize in bad credit.
We specialize in helping people with bad credit in getting a mortgage in the Mississauga, Brampton, Toronto and GTA areas.
Speak to us today at 1.800.808.1613 and our advisors will assist you with the best options available.