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 being a desirable location to live and raise a family, Waterloo is a great palace to grow your wealth in real estate. Homeowners have enjoyed a housing boom similar to other cities across the country. Mortgage demand is up in Waterloo, with sales soaring despite the pandemic’s impact on other Canadian economic areas.
Most Waterloo homeowners apply to banks for mortgages, though other lending options are available. The banks, however, have imposed very rigid stress tests for those seeking mortgage financing. Preference is given to those with exemplary credit scores (over 600) who can easily prove full-time monthly income or substantial assets against which to leverage a mortgage loan.
If banks turn you away due to poor credit, private lenders are available 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.
How to Check Your Credit Score
Regardless of loan needs, know your credit score and review your credit history regularly. In Canada, two major credit reporting agencies are Equifax and Transunion. These private agencies gather financial information about consumers’ borrowing habits and calculate their credit scores. Credit bureaus sell this information to lenders when borrowers request loans.
Each bureau allows you to obtain a free copy of your credit score from its website. At Mortgage Broker Store, we can also offer free credit score copies upon request.
Credit Score Requirements By Lender
- Banks require a credit score of 600 and above to be eligible for loan approval.
- Trust Companies and credit unions require a credit score of 550 and above to be approved for a mortgage loan.
- Private lenders do not have any credit score requirements when deciding on whether or not to approve loans.
If your credit score is too low for bank approval, a private lender can help you secure the funds needed. They can approve mortgages to borrowers with poor credit scores, otherwise known as bad credit mortgages. Keep reading to learn about the requirements for getting a bad credit mortgage in Waterloo.
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. Private lenders focus on your home’s appraised value, so bring a recent appraisal when meeting a Waterloo lender. Provide a list of assets, income sources, and home equity estimate 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 a loan with more than 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.
Generally, the lower your household debt ratio, the less risky a private lender will deem a mortgage loan. It is important to pay down the best you can existing household debt when seeking mortgage loan approval. Although private lenders can overlook outstanding debts, managing these debts before application is more favourable.
What Interest Rates and Fees are Associated with Private Lending?
There is no better time to try to obtain bad credit mortgages in Waterloo. 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 who have near-perfect credit and substantial household income. For the most part, banks are currently offering these rates.
Private lenders offer mortgages to those not meeting bank criteria but typically charge higher interest rates on loans. The loans are often short-term (1 to 3 years), and the fees attached to them will be higher than those charged by their bank counterparts.
Most private Waterloo lenders charge between 8% and 12% interest rates on mortgage loans, and fees generally range between 3% and 6% of the overall cost of the loan. These include administrative fees, legal fees, and the cost of a home appraisal.
Private lenders can offer different types of mortgage loans, including home equity loans, home renovation loans, Home Equity Lines of Credit (HELOC), second mortgages, and cash-out mortgage refinancing. The existing equity in your home and the LTV will be assessed for each loan type.
How to Improve Your Credit Score to Get Bad Credit Mortgages in Waterloo
While private lenders may overlook bad credit, it’s important to consistently work on improving your 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, you should not 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: If you can manage the loan, taking out a second mortgage will help improve your credit score. Consistently paying your mortgage builds a strong credit history, helping you secure better terms on future loans.
Mortgage Broker Store Will be Able to Help Guide You In Private Lending Options
According to the Kitchener-Waterloo Association of Realtors, the region saw a 27.8% increase in house sales in February of this year compared to 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 last year up to $752,289, and for the first time, the average price for a detached home surpassed the $900,000 price point.
At Mortgage Broker Store we have amassed a vast network of private lenders in Waterloo and across Ontario throughout our many years in the province’s real estate industry. We’ll help you find lenders offering the best private mortgage based on your home’s appraised value and equity.
If credit issues block your mortgage goals, we’ll help explore options and connect you with local lenders.
- Introduction
- How to Check Your Credit Score
- Credit Score Requirements By Lender
- Requirements for Bad Credit Mortgage Approval
- What Interest Rates and Fees are Associated with Private Lending?
- How to Improve Your Credit Score to Get Bad Credit Mortgages in Waterloo
- Mortgage Broker Store Will be Able to Help Guide You In Private Lending Options