All Canadian banks require a high credit score before they can approve you for a mortgage. Banks and credit unions require a minimum credit score of 550 to qualify for a mortgage. People with poor credit scores will not be able to go to institutional lenders and will need to turn to bad credit lenders. We help connect our clients that have bad credit with bad credit mortgage lenders in Ottawa.
Credit Scores Needed By Various Lenders
- Banks need to see a credit score of 600 or greater
- Trust companies need to see a credit score of 550 or greater
- Private lenders don’t use credit score when approving mortgages
Checking Your Credit Score
Banks can request your credit scores from Equifax and TransUnion, Canada’s top credit bureaus. Our team also credit reports for free and can give you a copy, or you can request your scores directly from the credit bureaus’ websites. When you fail to pay bills, go into bankruptcy or routinely take more debt you can pay, your credit score goes down.
Bad Credit Lender Mortgages in Ottawa
When you’ve verified that your credit score is worse than 550, only a private lender can provide bad credit mortgages for you. The bad credit lenders that service Ottawa can provide mortgages regardless of credit score. Two actions that can negatively impact your score are consumer proposals and bankruptcy, and these will cause you to be disapproved for bank mortgages. Our private lender contacts offer bad credit mortgages in Ottawa and most other Ontario cities.
Criteria for Bad Credit Mortgage Approval
Private lenders will not look at credit to approve a mortgage. Instead they will look at the existing property debts and the sales value. Private lenders are sensitive to risk and will not provide a mortgage when a property has too much existing debt. Lenders create registered mortgages on properties which let the lender sell the property if the borrower does not pay the mortgage off. After a property is sold, the lender can recoup their money after previous mortgage holders are paid off. When evaluating the risk of a property the private lender will measure that property’s Loan to Value (LTV) ratio. When calculating a LTV ratio, you must divide the existing secured debts by the selling price of the property. Ottawa bad credit lenders can lend on properties that have up to 80% LTV. Higher annual incomes and higher credit scores can help get better interest rates, but are not needed for mortgage approval.
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 Rates of Bad Credit Mortgages
Bad credit mortgage lenders will charge a higher rate than a bank to compensate for the high level of risk in this type of investment. Traditional bank mortgages charge an interest rate of around 3% to 4% and bank credit lenders will charge rates between 7% and 15%. Bad credit lenders also require that fees be paid to set the mortgage up. The lender and their lawyer will ask need payment for processing paper work, and a fee must be paid to a home appraisal company. Doing comparison shopping to compare the rates and terms of the different lenders will help you to get the best deal. We have a network of private lenders operating in Ottawa and can give clients several offers for their bad credit mortgage.
Gradually Improving Your Credit Score
To improve your credit score you must consistently pay off bills and credit cards. Your score will increase more quickly if you are always on time with your payments. Credit cards can be used to pay off bills and improve your credit score in the process. Putting small amount on the card each month will make it easy to pay off. A more simple way to improve credit scores would be to get a secured credit card from a bank.
Every large bank in Canada will be able to give you a secured credit card. Before getting the card, you must put down a deposit that will be used when an overdue payment is generated. It is a best practice to pay off all charges and to not exceed 60% of the credit limit. If you are consistent with your payments, your credit score will be increased in around 6 months.