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. Our mortgage brokers specialize in getting mortgages for people with bad credit.
What credit scores are required by different lenders?
- Canada’s major banks need a credit score of 600+
- Trust companies require a credit score of 550+
- Private lenders can lend regardless of credit score
How to Check Your Credit Score
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 low or poor credit score.
How to Get a Mortgage with Bad Credit?
If you know that your credit score is worse than 550 and you need a mortgage, you’ll need to find a bad credit 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. Our bad credit mortgage brokers have a large network of private lenders throughout Ontario who specialize in providing mortgages for bad credit with low rates.
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 an LTV of no more than 80%.
A Loan-to-Value ratio for a property is equal to all mortgages on a property divided by the appraisal value of the property. If you own a home worth $1,000,000 and get a new first mortgage for $750,000 then your LTV ratio is 75% (i.e., 750,000/1,000,000)
Most banks and other A-Tier Lenders can loan up to 95% LTV provided that the borrower has a good income and credit score. Most non-bank lenders can lend up to 75% LTV but can overlook income and credit issues.
Fees and Interest Rates for Bad Credit Mortgages
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 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 can help when qualifying for a mortgage with bad credit.
For private mortgage lenders in Ontario the most important metric is the amount that is being borrowed relative to the value of the property. This metric is known as the Loan-to-Value value ratio. The closer this ratio is to the maximum the higher the interest rate will be. In Ontario the most someone can borrow is up to 75% of the appraisal value of the property.
|Amount Borrowed (LTV Ratio)||Expected Interest Rate for Ontario|
|Borrowing 75% of the property’s value||11.99%|
|Borrowing 65% of the property’s value||9.49%|
|Borrowing 50% of the property’s value||8.49%|
Improving Your Credit Score
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 cardholder can never be in default. If the cardholder 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. Qualifying for a mortgage with bad credit can be difficult with the major banks, always try a bad credit mortgage company. Bad credit mortgage companies specialize in poor credit loans and can prove the funds you require. Remember it takes time to improve your low credit score, usually 6 months or longer.
Getting A Mortgage with Bad Credit
Getting a mortgage with bad credit can be difficult but a good credit score will enable you to refinance with bad credit. Bad credit mortgage lenders want borrowers that have at least 20% equity in the house. As a homeowner, you should be prepared with an explanation of why you need the bad credit mortgage and how you expect to pay off the mortgage. A bad or poor credit mortgage can be used as a temporary house mortgage until the borrower can improve their credit score. Once you have a bad credit home loan and your credit score improves you can ask your lender if you qualify for better mortgage terms.
Bad Credit Home Loans
Getting a bad credit home loan can be difficult, but it can be done, even if you have a poor credit score. If you already own the home and want to refinance the home loan the main criteria to qualify is the loan to value ratio of your house. Most bad credit home loans have a maximum loan to value ratio of 80%. If you are buying a house and have a low credit score and have at least a 25% down payment you should be able to qualify for a home loan. Income and credit scores are not used to approve mortgages but may affect the interest rate offered. You may also qualify for a second mortgage which can be used to pay off your existing debt.
Refinance Home Mortgage
The best way to refinance your home mortgage when you have a low credit score is to ask a mortgage broker for assistance. Refinancing home loans can be difficult but when you have a poor credit score it can become a daunting task. A mortgage broker can determine the best lender for your mortgage and help you get approved for a house with bad credit. The mortgage refinancing process can take about 2 to 3 weeks, therefore applying early is important. A second mortgage may be the correct solution instead of getting a new first mortgage, be sure to ask your broker about this option.
Increasing economic pressure means many Ontarians are reluctant to take on a mortgage.
With a network of private loan experts across the province, the chance to get a mortgage is closer than you think. Our advisors can help you find the right option with a low credit score. Instead, private lenders will look at the amount of equity you have in the home as collateral against default.
The recent global pandemic has created new opportunities for homebuyers to take advantage of deferred mortgage payments and low housing costs.
This year over year upward trend was also present among insured mortgages (12% increase) and uninsured (16%). Refinancing rose by 21% due to an increased approval rate of 81.5%, up from 78% in 2019.
An increase in the number of borrowing options available to home buyers has also made getting a mortgage more achievable. Private lenders will lend money in the form of registered mortgages, meaning that the lender may sell the property via power of sale if the borrower fails to pay their fees.
How can you increase your chances of getting a bad credit mortgage loan?
- Save more for a down payment
- Look at alternatives to banks such as private lenders
- Add a cosigner to the mortgage application
- Offer other properties as collateral for the mortgage
- Stay under your credit limit, and avoid applying for too much credit.
The team at Mortgage Broker Store can help you Learn how you can use your property as collateral on a bad credit mortgage loan. Private lenders like Ron Alphonso at Mortgage Broker Store help make the process easy with resources that can help you get a mortgage if you have no credit and with little to no money down.
We Provide Bad Credit Mortgages in All of Ontario Including
- East Gwillimbury
- Fort Erie
- Halton Hills
- Kawartha Lakes
- London, Ontario
- Niagara Falls
- North Bay
- North York
- Owen Sound
- Port Colborne
- Richmond Hill
- Sault Ste. Marie
- St. Thomas
- Thunder Bay
- Wasaga Beach