Getting a bank mortgage requires having a good credit score in order to qualify. Unfortunately, this can place people looking for a new mortgage with poor credit scores at a serious disadvantage. However, a low credit score does not have to stop people from getting a mortgage. There are certain private lenders that offer mortgages to people turned away by banks. Our team specialises in setting people up with private lenders that provide bad credit mortgages in Thunder Bay.
What a Credit Score Means
Lenders use your credit score to assess how reliable an applicant is. A higher credit score indicates more consistent payments and less risk. A person with a good credit score is someone who regularly and reliably pays their debts on time, while a lower credit score indicates the opposite. Better scores also often come with the benefits of better interest rates and terms. Scores range from 300-900, although some lenders may use different scales. A good score is 700+, while the average Canadian score is around 650.
How Banks and Lenders Check Credit Scores
The two main Canadian credit bureaus are Equifax (equifax.ca) and TransUnion (transunion.ca), from which banks, brokerages, and other agencies can pull your score. Individuals may also use these services to personally check their credit scores via the bureaus’ websites. This is an excellent option for those who may not know their credit score and don’t want to be surprised by a bank or lender.
What is a Private Lender?
Private mortgage lenders are individuals or groups who accept mortgage applications and are willing to take on more risky investments because they are not governed by the same laws as institutional lenders.
The Benefits of Working With a Private Lender
Not only do private lenders approve mortgages for individuals with low credit scores, but they tend to approve them much faster. Conventional loan approval takes 30 to 45 days, while loan approval can come from a private lender within just a couple of weeks. Applicants may also be able to borrow more money from a private lender than from a formal institution.
Interest Rates and Fees for Private Lender Mortgages
Because applicants with low credit scores are seen as a more risky investment, private lenders will want to ensure that their investment is safe. This means that the lenders charge significantly higher interest rates. Traditional mortgages are currently coming with interest rates between 2% and 4%. Private mortgages have interest rates of 8% to 15%. There will also be additional fees that are related to setting up the mortgage.
Requirements for Private Lender Mortgages
Private lenders decide how much to loan applicants based on the value of the property and the value of existing mortgages. The amount of money that may be lent depends on the equity remaining in the property. The metric used by lenders is called a Loan-to-Value ratio (LTV) and it is equal to the value of existing mortgages divided by the value of the property. A private lender will lend money on properties with a maximum LTV of 80%.
Securing a Bad Credit Mortgage in Thunder Bay
Poor credit scores do not disqualify home buyers and homeowners from applying for first or second mortgages. We have connections with many private lenders serving Thunder Bay that are available to help those with less than poor credit.
How to Repair Bad Credit
It is simple to repair bad credit, but it will take time. To fix poor credit scores, individuals should be diligent in paying off monthly debts. This includes regular credit card payments, car payments, and student loan payments. Some debts will be able to paid off right away, while others need to be chipped away at, depending on the financial ability of the individual. Future credit card purchases should be kept small and within the individual’s ability to pay off monthly. Consistent reduction and elimination of debt will lead to an improved credit score over time.