The major Canadian banks require a high credit score to approve a mortgage. Without a credit score of 600 or more, you will not be approved for a mortgage at a bank. Our team specializes in setting up bad credit mortgages in Windsor.
Credit Scores for Mortgage Approval by Different Lenders
- Banks in Canada need a credit score of at least 600
- Trust companies in Canada need a credit score of at least 550
- Private lenders can approve a mortgage regardless of credit score
Banks and trust companies will not provide mortgages under any circumstances to a person with bad credit. Private lenders work with people who the banks turn down and can provide mortgages in different situations. Our team connects our clients with private lenders that provide bad credit mortgages in Windsor.
Retrieving Your Credit Score Report
People who provide mortgages can create copies of your credit score. Our team can also generate these reports and give them to you free of charge. The credit bureaus Equifax and TransUnion can give you a copy of your report if you request it on their respective websites. A bad credit score is a result of not paying bills, taking on too much debt, or going through bankruptcy or consumer proposal.
Private Lenders That Offer Bad Credit Mortgages in Windsor
If you do not have a credit score of at least 550, you will need the services of a private lender that lends on homes in Windsor. Private lenders are able to lend on homes in Windsor no matter what the applicant’s credit score might be. These lenders can also service people who are turned away by banks because of bankruptcy or consumer proposal. Our large network of Ontario lenders includes many lenders that provide bad credit mortgages in Windsor.
Criteria for Bad Credit Mortgages
Before approving a mortgage application the lender will check the value of existing mortgages and get an estimate of the selling price of the property. If a lender sees a very high amount of existing debt in a property they will not agree to put a mortgage on a property. As permitted by the Ontario Mortgages Act a mortgage lender is able to sell the subject property when the mortgage is left unpaid for a few weeks. When the lender sells the property they must first pay out the previous mortgage lenders before reclaiming their own money. The risk of a mortgage deal can be determined by looking at the Loan to Value (LTV) on a property. Private lenders that service Windsor can go up to 80% LTV on a property. Private lenders may be willing to reduce their interest rates if a person can show a high income or credit score but ultimately the LTV will determine if the mortgage is approved.
A Loan-to-Value ratio for a property is equal to all mortgages on a property divided by the appraisal value of the property. If you own a home worth $1,000,000 and get a new first mortgage for $750,000 then your LTV ratio is 75% (i.e., 750,000/1,000,000)
Most banks and other A-Tier Lenders can loan up to 95% LTV provided that the borrower has a good income and credit score. Most non-bank lenders can lend up to 75% LTV but can overlook income and credit issues.
Understanding the Costs of a Bad Credit Mortgage
People who cannot qualify for the low rate mortgages offered by banks must use a private lender. Private mortgage lenders will charge more than banks because they mainly deal with riskier mortgages. Banks in Canada provide mortgages with rates of 3% to 4% and private lenders provide mortgages with rates of 7% to 15%. Private mortgage lenders will also charge other fees needed to pay the people who set up the mortgage. Lenders pay their administrative staff, their legal team, and a home appraiser to get an estimate on the value of the property. Our team can get in touch with many different lenders and give you a handful of mortgage quotes.
Of all the different types of lenders, private mortgage lenders have the most lenient approval criteria. Private lenders will generally provide mortgages up to 75% of the value of the property. Most private lenders can only offer mortgages on typical residential homes worth at least $100,000. The ratio between the value of the requested mortgage and the value of the property is called a “Loan-to-Value” (LTV) ratio and is the main factor when it comes to approval on a private mortgage. These criteria are different from those of Banks, Trust Companies, and Credit Unions, which will also consider a borrower’s income ratios, employment, and credit score in addition to their LTV ratio. Private lenders are usually not concerned with the creditworthiness of the borrower.
Since private mortgages are considered to be a high-risk investment, these lenders demand higher rates and fees. A borrower can expect to pay rates between 7% to 12% and fees equal to 4% to 6% of the mortgage amount. The rates are dependent on the LTV ratio, while the fees are dependent on the complexity of the mortgage, which includes the cost of dealing with any legal issues. Approval can also depend on the location of the property, and in general, larger cities will have higher maximum LTV ratios. This rate estimation tool will take into account all of these factors and estimate what interest rate you can expect to pay for a mortgage.
Increasing Your Credit Score
To increase credit score you must ensure that bills and credit card fees are fully paid at the end of each month. Putting a smaller amount of the credit card means you will be able to easily pay off the charges. A safer option for an increased credit score is to obtain a secured credit card from your bank. The secured credit card requires an initial deposit which is used when the card’s charges are not paid. Generally, you will not want to exceed 60% of this card’s credit limit. It takes around 6 months to improve a poor credit score.