An Ontario homeowner is experiencing short-term economic difficulties. It can be frustrating to not be able to profit currently from such a healthy real estate market, especially if there is damaged credit and perhaps less household income during the prolonged pandemic. Can you still qualify for a mortgage with damaged credit?
Credit Scores and Mortgage Approval: Is Any Credit Too Low to Qualify?
There are three main lenders in the province of Ontario that can offer various types of mortgage loans. Many homeowners may not be familiar with all three classifications of lenders. Ontario-based lenders tend to fall into three broad categories:
- A Lenders– Banks and large lenders. These lenders tend to require quite stringent criteria to qualify for a mortgage loan. Based on recent tightened stress tests imposed by the bank, criteria include near-perfect credit scores, and preference is given to full-time salaried employment.
- B Lenders– Credit unions and trust companies. These lenders may not require such high credit scores but still prefer very solid credit standing along with traditional salaried-based employment.
- C Lenders– These lenders are private lenders that may lend individually, as a group of lenders, or through mortgage brokers that specialize in private lending. Credit can be overlooked, and these lenders will rely on current appraisals of your property and its location. Due to damaged credit, interest rates associated with private mortgage loans are higher than those offered by the banks. Interest rates on most types of private mortgage loans range from 8% to 12%, with fees ranging from 4% to 6% of the total cost of the loan.
Mortgage Loan Approval
If credit has become a barrier to mortgage loan approval from the banks and credit unions, there is a wide network of private lenders available that will offer secured mortgage loans despite very poor credit. Even credit that is severely damaged will not stand in the way of obtaining a private loan if other assets are available to leverage the loan against and a current appraisal of your property demonstrates at least 20% equity in your property.
Private lenders will factor in the desirability of the location of your property and all sources of monthly income, including self-employed salary and monthly investment income, and will calculate the Loan-To-Value (LTV) of your property.
These lenders will lend up to 75% LTV, which represents 75% of the appraised value of your home. With sufficient demonstrated equity, different private loan options are available. Ontario homeowners can obtain second mortgages, home equity loans, Home Equity Lines of Credit (HELOCs), home renovation loans, consolidation loans, short-term bridge financing, and even a new principal mortgage if the current mortgage terms are unfavourable.
Can You Be Disqualified from Obtaining a Mortgage?
The short answer is yes if you are applying with a lender whose criteria are out of reach. If you do have damaged credit, many A and B lenders will not approve you for mortgage financing. Credit plays a very central role in determining mortgage eligibility with these lenders. Insufficient salary and excessive debt can also prevent an Ontario homeowner from securing a mortgage loan.
Additionally, if you are self-employed, A and B lenders may be reluctant to offer a secured mortgage loan even if your property is used as collateral. Self-employed income tends to vary from month to month and is difficult to prove yearly. Banks will prefer homeowners with easily demonstrated consistent yearly salaries.
Private lenders offer financing despite poor credit, requiring homeowners to have at least 20% equity for secured mortgage options. Too little equity may pose a problem. Location plays a large role. However, the appraised value and equity can offset any drawbacks to location.
Any new debts after you apply for a mortgage loan can disqualify you as well. Insufficient income or lack of income can disqualify a homeowner from further mortgage financing.
Main Steps to Boost Your Chances of a Mortgage Approval
While options exist for obtaining a mortgage despite poor credit, it’s crucial to continually improve your chances for approval and favourable mortgage terms.
- Pull a recent credit report from one of the two major credit reporting agencies in Canada, Equifax or Transunion. Study it carefully and look at the areas that need improving.
- Always pay your credit cards on time and in full if possible.
- Pay down debt as best you can.
- Have a recent appraisal of your property.
- Increase monthly income if necessary.
- Save for a larger down payment.
Ontario Stats
Housing sales are booming, and inventory is tight, with the number of buyers outweighing available housing inventory.
In Ontario, according to the Ontario Real Estate Association, residential sales activity reported through the Multiple Listing Service (MLS) in Ontario numbered 16,060 units in June 2024. This number represents a below 20.9% of the five-year average. Nationally, home sales activity was down by 9.4% from year-ago levels in June 2024.
The average price of resale residential homes sold across the province in June 2024 was a record $884,761, decreasing by 2.3% from June 2023. The Ontario Real Estate Association has reported a more comprehensive year-to-date average price of $880,807, a modest decline of 1.2% from the first six months of 2023.
Mortgage Broker Store Can Help Guide You Towards Mortgage Approval Despite Poor Credit
The advantage of private loans is their short-term nature, quick negotiation, and varied options for addressing immediate financial needs. Most private loans are between 1 to 3 years in length. Long enough to address immediate financial concerns and to work on restoring credit for future mortgage applications with favourable terms. Don’t let damaged credit stop you from addressing the concerns you have now. Mortgage Broker Store specializes in bad credit mortgages, connecting you with Ontario-based private lenders for tailored loan solutions. Don’t hesitate to contact us at your convenience to address any concerns you may have. Email ron@mortgagebrokerstore.com or call 416-499-2122.
