Different lenders cater to different people based on their credit score. If you have a credit score that is worse than 550 you will not qualify at banks or trust companies and will have to apply for a bad credit mortgage. If you have bad credit, then you should get in touch with a private lender that specializes in providing bad credit mortgages in Ontario.
What credit scores are required by different lenders?
Your credit scores are calculated by the two major Canadian credit bureaus: Equifax and TransUnion. You can go to the websites for these credit bureaus and order a copy of your credit report, or you can contact our mortgage team and we can provide it free of charge. If you’ve failed to pay your bills, have gone through bankruptcy or regularly take more debt than you can pay, you will likely have a poor credit score.
If you know that your credit score is worse than 550 and you need a mortgage, you’ll need to find a bad credit private mortgage lender in Ontario. Most bad credit lenders are companies or individuals that specialize in providing mortgages regardless of credit scores. If you have undergone a bankruptcy or consumer proposal in the last two years you will also need to work with a private lender as banks will turn you down. We have a large network of private lenders throughout Ontario who specialize in providing mortgages for bad credit.
Instead of using credit score to approve mortgages, private lenders will look at the equity in the property. Since a bad credit mortgage has a higher risk of defaulting, private lenders need to find other ways of reducing their risk. Private lenders will lend money in the form of registered mortgages, meaning that the lender may sell the property if the borrower fails to pay their fees. When the lender sells a property, they are paid off after all previous mortgages are paid off. To assess the risk associated with a property, private lenders will calculate a metric called Loan to Value (LTV). LTV is equal to the value of existing mortgages divided by the market value of the property. Bad credit lenders will lend on properties with a LTV of no more than 80%. Income and credit score are not used to approve mortgages but may affect the interest rate offered.
Since a bad credit mortgage is considered a risky investment the interest rate is higher than that of a traditional bank mortgage. While the major banks charge around 3% to 4% a bad credit lender may charge anywhere from 7% to 15%. A bad credit mortgage also requires the borrower to pay fees related to setting up the mortgage. These fees go to the real estate lawyers, to the mortgage broker or lender for administrative work, and to a home appraisal company. It is a good idea to contact several lenders and compare mortgage rates and terms. The lenders will compete with each other and offer lower mortgage rates. We have a large network of bad credit lenders throughout Ontario that we use for our bad credit clients.
Your credit rating should automatically improve if you consistently pay off your bills and credit cards. It is important to not put yourself in a situation where you cannot pay off your debts. The most common way to improve your credit score is to use credit cards and consistently pay them off. You can put small charges to pay off on a card each month, or you can get a secured credit card.
Secured credit cards are offered at all major Canadian banks. These cards require a deposit so that the card holder can never be in default. If the card holder fails to pay the fees, then the deposit is used to pay the fees. It is recommended to not exceed 60% of the credit card limit and always make more than the minimum monthly payment. It takes time to improve your credit score, usually 6 months or longer.