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 realize that your credit score isn’t where you expected it to be. You cannot go to a bank, and you may ask 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 used in Canada. In Canada, just like 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 with 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 drop.
Private Lenders for Bad Credit Mortgages in Pickering
As the banking industry makes money on their services, some private lenders make a living by specializing in people with bad credit. So, if you have a score lower than 550 and still want that mortgage, only a private lender can 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 (LTV) is the home’s mortgage divided by its selling price. Private lenders go up to 80% Loan-to-Value. In other words, if the mortgage amount 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 they have to sell the property if the borrower can’t continue to make the required payments. If the LTV ratio is too high, private lenders cannot recover the costs associated with the initial loan.
Interest Rates and Fees for Bad Credit Mortgages
Because of the higher risk, private lenders charge a higher interest rate than traditional lending companies. Banks lenders usually charge an interest rate of around 3% to 4%. The rate typically charged by a private lender is 8% to 12%. Additional fees with a private lender include lawyers, appraisals, and processing beyond the payment to the lender. These fees must be paid before setting up the mortgage.
How to Repair Your Credit Score
Improving your credit score is simple enough to do, but it’s time-consuming. Quickly improve your score by paying bills on time and avoiding new debt when possible. 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. Improve your score by charging a small amount each month and paying it off to show creditworthiness.
To improve your score, it’s best to use no more than 30% of your card’s total credit limit. If you are consistent and pay for everything on time, your score will improve in about six months. Focusing on your end goal makes credit repair less daunting, and the result is worth the effort.