Owning a home in Aurora or leveraging the equity from your current residence may sometimes require exploring unconventional financial avenues, especially if your credit score is less than ideal. While banks and many Canadian financial institutions have stringent procedures and criteria, including a minimum credit score requirement of 600 for mortgage applications, alternative solutions do exist for those not meeting this threshold.
Understanding Bad Credit Mortgages
For those with credit scores below the bank-required minimum, obtaining a traditional mortgage can be challenging. However, private lenders step in to fill this gap, working with applicants whose credit scores might be deemed ‘bad’. These specific mortgages tailored for individuals with less-than-stellar credit histories are termed ‘bad credit mortgages’.
Determining Your Credit Score
Before delving into bad credit mortgages, it’s essential to know your credit standing. In Canada, two primary credit bureaus – Equifax and TransUnion – maintain and provide credit scores. These agencies collate borrowers’ financial data, which lenders use to decide loan interest rates and approval outcomes. Accessing your credit report is simple: visit the websites of these bureaus and provide the necessary details.
Understanding Lender Requirements
Different lenders have varied credit score benchmarks:
- Banks typically insist on a score of 600 or above.
- Trust companies and credit unions often set their minimum at 550.
- Private lenders, on the other hand, don’t rigidly adhere to any minimum credit score requirement.
Exploring Bad Credit Lenders in Aurora
For individuals with credit scores under 550, mainstream financial institutions like banks might be out of reach. This is where entities like Mortgage Broker Store come into play. Our expansive network of private lenders in Aurora offers financing solutions regardless of credit score, often extending loans even to those with past financial missteps like bankruptcies. Unlike traditional banks, our lenders provide flexibility on how the borrowed funds are used, be it for home renovations, education fees, or other personal needs.
Criteria for Bad Credit Mortgage Approval
Private lenders primarily evaluate a property’s value when considering a bad credit mortgage application. They compute the Loan to Value (LTV) ratio, which is the proportion of debts to the home’s market price. Generally, an LTV below 75% indicates favorable loan approval chances. This value-centric approach ensures that, in case of a default, the lender can recover their funds by selling the property.
Interest Rates and Associated Costs
While traditional banks might offer mortgage interest rates between 2.7% and 4%, private lenders, due to the inherent risk of lending to those with bad credit, typically charge between 7% and 14%. Moreover, setting up such mortgages involves additional fees, including legal, appraisal, and administrative costs, ranging from 3% to 6% of the total loan value.
Boosting Your Credit Score
Improving your credit score is a continuous journey. Effective credit card management, like paying off balances monthly and not exceeding 60% of your credit limit, can be beneficial. Secured credit cards, which require a deposit as collateral, can help regulate spending. Maintaining older credit accounts and minimizing credit checks (or ‘hits’) can also positively influence your credit score. Over time, these consistent efforts can elevate your score, broadening your financial opportunities.
Bad Credit Mortgage Solutions in Aurora with Mortgage Broker Store
With over a decade of experience in Ontario’s real estate sector, Mortgage Broker Store boasts a robust network of lenders, including those specializing in bad credit mortgages. Our expertise can guide you through the maze of options, ensuring a solution tailored to your financial landscape. Additionally, as private lenders ourselves, we can present alternative financing avenues if needed. To understand bad credit mortgages better, discover eligible lenders in Aurora, or to connect with our team for a free consultation, reach out to Mortgage Broker Store.