Waterloo is a picturesque city located approximately 94 km southwest of Toronto. With a population of 104,986 and home to one of the world’s leading universities, the University of Waterloo, the city offers an envied lifestyle for its residents.
Along with the desired location in which to live, Waterloo homeowners are fortunate to be enjoying a housing boom similar to other cities across the country. Demand for mortgages is up as sales have skyrocketed in the Waterloo region over the last year despite the pandemic negatively impacting other areas of the Canadian economy.
According to the Kitchener-Waterloo Association of Realtors, the region saw a 27.8% increase in house sales in February of this year from the same time in February 2020 and up 66.7% from January 2021, making February a record-breaking month for home sales.
The average sale price of all residential properties sold in the Waterloo region increased by 32.1% from this time last year up to $752,289 and for the first time, the average price for a detached home surpassed the $900,000 price point.
When applying for a mortgage loan the majority of Waterloo homeowners may turn to the banks despite there being other lending alternatives available. The banks, however, have imposed very rigid stress tests for those seeking mortgage financing. Preference is given to those that have exemplary credit scores (over 600) and can easily prove full-time monthly income or substantial assets to leverage a mortgage loan against.
For those that may be turned away from the banks because of poor credit, private lenders are well established in Ontario and the Waterloo region. Mortgage Broker Store is in a position to help those Waterloo homeowners who are seeking mortgage financing despite damaged credit. Private lenders will not require the same credit score as the banks or credit unions
Credit Score requirement by different lenders
- Banks accept an application from individuals with a credit score of 600 and above.
- Trust Companies and credit unions will require a credit score of 550 and above to be approved for a mortgage loan.
- Private lenders will be able to negotiate mortgage loans despite poor credit scores by looking at other criteria, namely the loan to value (LTV) of your property and the existing equity in your home.
How to check your credit score
Regardless of whether you have the credit score to apply to the bank for a mortgage loan, you must be aware of your credit score and familiar with what is reported on your credit history. In Canada, there are two major credit reporting agencies, Equifax and Transunion. Each bureau will enable you to obtain a copy of your credit score directly from their website. At Mortgage Broker Store, we offer free credit score copies upon request.
Once you have determined your credit score and banks are not an option, Mortgage Broker Store has a network of private lenders in Waterloo. We will be able to provide you with a suitable private lender who can help negotiate a private mortgage loan based on the appraised value of your home and the degree of the existing equity in your property.
Requirements for Bad Credit Mortgage Approval
While banks rely heavily on creditworthiness, a private lender can look to different criteria to approve a mortgage loan. A private lender is looking to the appraised value of your home which is why you will need to bring with you a recent appraisal when you sit down with a Waterloo private lender. You will also need to provide a list of current assets, all sources of monthly income, and an estimate of the existing equity in your home to process a private mortgage loan.
When negotiating a mortgage loan with a private lender he/she will assess the Loan to Value (LTV) of your home which is simply the total mortgage value divided by the property’s value. Most private lenders will not exceed an LTV of 75% ( which is 75% of the appraised value of your home). A private lender will also be looking to see that you have at least 25% equity existing in your home.
As a general rule, the lower your household debt ratio, the less risky a private lender will deem a mortgage loan. It is important to try to pay down the best you can existing household debt when seeking mortgage loan approval. Although private lenders can overlook outstanding debts, it is more favorable to manage these debts before application.
What Interest Rates and Fees are Associated with Private Mortgages?
There is no better time to try to obtain mortgage financing. Mortgage interest rates are at an all-time low. Some lenders can negotiate mortgage loans with rates under 2%. These rates, however, apply to those that have near-perfect credit and substantial household income. For the most part, it is the banks offering these rates currently.
While able to offer mortgage financing to those that have not met the stringent criteria demanded by the banks, private lenders will tend to charge higher interest rates on mortgage loans. The loans will be short-term (1 to 3) years generally and the fees attached to the loans will be higher than those charged by their bank counterparts.
Most private Waterloo lenders will charge between 7% and 12% interest rates on mortgage loans and fees will generally range between 3% to 6% of the overall cost of the loan. These fees include administrative fees, legal fees, and the cost of a home appraisal.
Private lenders can offer different mortgage types including home equity loans, home renovation loans, Home Renovation Lines of Credit (HELOC), second mortgages, refinancing the terms of a first or primary mortgage on a property. The existing equity in your home and the LTV will be assessed for each loan type.
Ways to Improve Your Credit Score
A lender will be assessing your creditworthiness and although a private lender may be able to overlook bad credit, it is advisable to always be working towards improving your overall credit score. Easy ways to do this include:
- Pay your credit cards on time. Even one late payment can negatively affect your credit score.
- Try not to max out your credit. As a general rule of thumb, it is best not to exceed 60% of your available credit.
- Pay all your bills on time. Billers may report late payments to the credit reporting agencies which will negatively impact your credit score.
- Take out a second mortgage. Although some may think that this will negatively impact your credit score the reverse holds. By paying your mortgage reliably every month you can build a responsible and positive credit history which will enable you to negotiate the best terms on future mortgage loans.
Mortgage Broker Store Will be able to Help Guide You In Private Loan Options
At Mortgage Broker Store we are well versed in the private loan options available in Ontario and the availability of private lenders with access to a wide network of private lenders in the Waterloo area and throughout the Province.
When credit problems have prevented you from reaching your mortgage goals, we will be able to sit down with you and discuss relevant options open to you and direct you to private lenders in your area to obtain mortgage financing. Use the equity in your home to secure a private mortgage loan to pay for immediate financial concerns and to profit from such a healthy Waterloo housing market.