Having bad credit can make getting a traditional mortgage loan from a bank or credit union challenging. The credit scoring agency Equifax reports that a credit score from 300 to 559 can prevent you from getting accepted through traditional lenders.
That’s why bad credit mortgages in Brampton are a viable alternative through private lenders. These alternative lenders have a more streamlined process that emphasizes equity in the appraised value of a property. Understanding where you stand financially is a good first step. That’s why you should know how to check your credit score.
Checking Your Credit Score
First, it’s essential to know that requesting a credit report does not affect your score. You can ask for your credit report from Transunion or Equifax online. Equifax allows you to look at your credit report and supplies monthly updates. TransUnion will also allow you to download the information called a Consumer Disclosure.
Remember that a credit report is a detailed record of your financial behaviour and credit history. The credit score is a number that highlights your creditworthiness. The two are related since the credit score is derived from information in a credit report.
Understanding how likely a traditional lender will accept your application depends heavily on your credit score. Remember, anything below 559 can be considered poor.
Both companies, Equifax and TransUnion, can supply you with your number. A private or alternative lender is an excellent option for people with low credit scores.
Private Lenders for Brampton Bad Credit Mortgages
Alternative or private mortgage lenders are any non-bank entity dealing in mortgages. Private lenders are often individuals, while alternative lenders can be organizations like mortgage syndicates or Mortgage Investment Corporations (MICs).
- Single lenders are generally people with private funds of investment capital. Borrowing from one of these individuals means that you know the entire mortgage amount is coming from a single place.
- Another option is a Mortgage Syndicate, which consists of a group of private lenders. Individual lenders in one of these syndicates can choose which mortgage loans they contribute to and how much they want to put in. In some situations, investors can donate a portion of the total cost to diversify their portfolios, which means that interest rates and fees can be more flexible.
- Mortgage Investment Corporations (MICs) are a larger group of individual investors who simultaneously pool their capital to lend money on many mortgages. A mortgage syndicate has a different structure than a MIC, with the key difference that a MIC pools its money together, while a syndicate does not.
Understanding the benefits of private lenders for Brampton’s bad credit mortgages means familiarizing yourself with the lending criteria. Remember that a loan can be processed faster, and private mortgage lenders are less regulated than credit unions and banks.
Repairing Your Credit Score
Here are some stepping stones to improving your credit score.
- The longer the credit account stays open, the better. That’s why keeping older versions open is a good idea, even if you’re not using them regularly. Just make sure there aren’t any fees involved.
- Using your credit responsibly is an excellent way to improve your credit scores. The suggestion is to use less than 35% of the available credit.
Of course, the first tip is to make your payments on time. If you can only pay part of the amount, it’s wise to make the minimum payment.
Lender Approval Criteria
The traditional lending process can take several weeks from beginning to end since it involves stringent documentation of your identification and income. You’ll need to present banking statements, your credit score, and your net worth. They also look at your down payment source.
Private lending requires some of the same documentation, but the focus differs. For example, private lenders looking at bad credit mortgages in Brampton will look at the equity you’ve put together and the Loan-to-Value Ratio (LTV). Most private mortgage lenders will process loans for up to 75% LTV.
Here’s an example of how that metric would work. If a property is worth a million dollars and the owner wants a $600,000 private mortgage, they have an LTV of 60%.
Of course, streamlined services like these that cater to people with credit issues have costs involved.
Mortgage Rates and Fees
People who apply for these mortgages must understand they are high risk. Private lenders usually look for higher rates and fees that differ from credit unions and banks.
The LTV ratio is one of the deciding factors when dealing with bad credit mortgages and the associated rates and fees. Several other factors are involved, like any legal issues that need to be dealt with, which can add to the overall cost.
Fees and rates also depend on the location of the property. It’s essential to remember that bigger cities have higher LTV numbers. Smaller locations have lower LTVs. For cities and towns with a population of under 30,000 people, the LTV is usually 65%.
Whether you will use a private lender to get a bad credit mortgage or a traditional Institution, improving your credit score is always a good idea.
Need Help?
Credit issues don’t need to stop you from attaining your financial goals. Mortgage Broker Store is a private mortgage lender in North York that can help you with a bad credit mortgage. We serve several locations in the GTA. That includes places like Oshawa, Richmond Hill, and Scarborough.