You have decided that you want to get a mortgage. You have the home equity, and you go pull a copy of your credit score (or a lender pulls it for you). This is when you come to the realisation that your credit score isn’t where you expected it to be. You will not be able to go to a bank, and you may us to help you apply for some bad credit mortgages in Pickering.
Various Lenders need specific scores to give out mortgages:
- Banks need a credit score of 600 or higher
- Trust companies need at least a credit score of 550 or higher
- Private lenders don’t use credit score, but rather the equity
How To Check Your Credit Score
Equifax and TransUnion are the two major credit score companies that are used within Canada. In Canada, just as anywhere else, you can request a free copy of your credit reports from both companies or if you are turned down for a loan of any kind you can request a copy as well. This is highly recommended before you apply for new credit or a mortgage. Your credit score reflects your ability to pay your obligations back in a timely manner. If you keep up on all your obligations, your score goes up. If you file for bankruptcy, don’t pay on time, or even just pay late your score will go down.
Private Lenders for Bad Credit Mortgages in Pickering
Just as the banking industry makes money on their services, some private lenders make a living by specialising in people with bad credit. So if you find you have a score lower than 550, and still want that mortgage, only a private lender is able to help you get it. Bad credit mortgage services in Pickering can help you and your family get into that new home. Private lenders will give you a mortgage regardless of your score, making it less stressful in the long run.
Requirements for Private Lender Mortgages
The biggest requirement for private lenders is Loan to Value ratio. A loan to value ratio is the home’s mortgages divided by its selling price. Private lenders go up to 80% Loan to Value. In other words, if the amount of the mortgage is too high in a direct ratio to how much it’s worth, there is too high of a risk for the lender to take on. The lender has to be able to recoup their costs if in the even that they have to sell the property if the borrower isn’t able to continue to make the required payments. If there is too high of an LTV ratio, private lenders cannot recover the costs associated with the initial loan.
Interest Rates and Fees for Bad Credit Mortgages
For the reason of the higher risk, private lenders also charge a higher interest rate than traditional lending companies do. Banks lenders will usually charge an interest rate around 4%. The rate that is typically charged by a private lender is 7%-15%. There will also be other fees associated with a private lender such as lawyers, appraisals, processing in addition to the payment to the lender. These fees must be paid prior to setting up the mortgage.
How To Repair Your Credit Score
Improving your credit score is simple enough to do, but it’s time-consuming. You can quickly improve your score by just paying your bills on time and not taking on any new debt if you can avoid it. Credit cards are a good way of improving your score as well. Most banks in Canada will give you a secured credit card. This card’s credit limit will be based on the amount you put as a deposit. To make your score improve you can charge just a small amount and pay that off every month to show your credit worthiness.
It is the best practice to not exceed 30% of the total amount of available credit on the card to help improve your score. If you are consistent and pay everything on time, your score will be improved in about six months’ time. Keeping in mind the end goal that you are trying to get to, makes repairing your credit score a less daunting task and the end result will be worth it.