Banks in Canada have very strict lending requirements which make it difficult for people with bad credit to qualify for a loan. Since many institutions will not be willing to offer conventional mortgages, you will be required to get a bad credit mortgage from a private lender. The interest rate charged for bad credit mortgages is usually higher than the interest charged on normal loans. This is because the risk of lending to people with a low credit rating is much higher. Our brokerage has over 10 years of experience and has helped many people get bad credit mortgages in Stouffville.
The credit score you require to qualify for a mortgage differs from one lender to another. Requirements for some lenders include:
People’s credit scores are determined by the Canadian credit bureaus. Credit bureaus in Canada include Equifax and TransUnion. When banks want to evaluate your potential to pay back a mortgage, they simply pull this information from these bureaus. You can also visit the websites of these credit bureaus and request your score, or we can provide it to you for free.
Private lenders include individuals or private companies who lend money to people with a low credit rating. They also come in handy when you need a loan of any type which was not be approved by the bank. Most private lenders charge a higher interest rate than banks. Private lenders are not strict when it comes to credit scores they find acceptable or unacceptable. There are many private lenders offering bad credit mortgages in Stouffville and their requirements are different than those of banks.
Private lenders will evaluate the risk associated with a mortgage before approving the mortgage. One of the important determining factors is the loan to value ratio. This ratio is calculated by dividing the mortgage value of the home with the selling price of the home. Most private lenders are comfortable giving mortgages for properties with a loan to value ratio of 85%.
Using private lenders to obtain a mortgage is more expensive. Banks usually charge an interest rate of 3% to 4%. Private lenders, on the other hand, charge interest ranging from 8% to 15%. In addition to the high-interest rates, they also charge additional fees including administrative charges and a home appraisal fee. Since lawyers are also involved, legal fees will be required.
A low credit score is not permanent. You can gradually improve it and in future, you may qualify for loans from banks. Using your credit card wisely can help increase your credit score. It is advisable not to use your card to its full credit limit. It is safer to use up to 60% of the limit. Make payments on time and in full. Your credit score will be repaired in around six months if you are consistent with your payments.