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Types of Bad Credit Mortgages

Types of Bad Credit Mortgages

The journey towards securing a mortgage, particularly when grappling with the nuances of bad credit, can often seem like a difficult challenge. There are many options, each tailored to distinct financial backgrounds and credit histories, for borrowers. This article delves into the various types of bad credit mortgages, explaining the complexities of each to shed light on their functionality and suitability.

First Mortgages from Alternative Lenders (B Tier and Private Lenders)

In the landscape where traditional banking institutions might shut their doors to those with less-than-stellar credit scores, B-tier and private lenders present alternative options. These lenders, known for their flexibility, cater specifically to those whose financial journeys have been less than linear. The interest rates and down payments might skew higher, reflective of the perceived risk, yet they offer a tangible path to financing for many.

B-tier lenders, often construct their loan products to be temporary solutions – bridges to a time when conventional banking becomes feasible. In contrast, private lenders, typically comprising individuals or investment groups, place their emphasis not on credit scores but on the intrinsic value and potential of the property in question.

Second and Third Mortgages

The world of second and third mortgages is suited for those who have already embarked on the mortgage journey but find themselves in need of additional financial resources. These loan types, while inherently riskier and thus carrying heftier interest rates, can be instrumental in navigating financial distress or in capitalizing on urgent opportunities.

A strategic approach to these mortgages is paramount; they should not be viewed merely as easy cash influxes but as calculated steps in a broader financial strategy. These are risky mortgages, and borrowers need to ensure they have a plan in place to pay the money back.

Cross-Collateralized or Blanket Mortgages

For borrowers with multiple properties, cross-collateralized or blanket mortgages offer a way to get financing approved with bad credit. By leveraging the combined equity of several properties, you can be approved for mortgages that would not be approved with any individual property alone. However, this approach is considered high risk to the borrower. In the event of a mortgage default, the lender would be able to sell all properties that are registered as mortgage collateral.

This mortgage type can be particularly beneficial to people with multiple properties. It does require that the borrower be financially savvy and able to understand this non-standard mortgage type.

Mortgages Requiring a Guarantor

In situations where credit history becomes a stumbling block, the introduction of a guarantor can make mortgage approval easier. This guarantor, by agreeing to back the loan, provides a layer of security to the lender. This arrangement often leads to more favourable loan conditions and lowers the lender’s perceived risk. The guarantor’s commitment is responsible for making payments if the primary applicant fails to do so.

Mortgages Requiring a Joint Applicant

The concept of joint applicant mortgages revolves around pooling the resources for multiple people. By pooling resources – be it credit scores, income, or both – applicants can present a more attractive mortgage application to lenders. This partnership, often seen among spouses or business partners, can be the key to mortgage approval in spite or income or credit issues.

Mortgages Requiring the House to Be Sold

Certain mortgages come with the unique condition of necessitating the sale of the property within a specific timeframe. These are typically short-term solutions, designed as financial bridges during periods of transition or upheaval. While they offer immediate relief, the looming deadline for sale injects a sense of urgency into the equation, making them suitable only for those with a clear and actionable exit strategy.

Need Help with a Bad Credit Mortgage?

Navigating the realm of mortgages with a bad credit history is undoubtedly complex, but it’s far from being a dead end. Each type of bad credit mortgage offers unique advantages and comes with its own set of considerations. From the flexibility of B-tier and private lenders to the strategic implications of second and third mortgages, and the nuanced dynamics of guarantor or joint applicant mortgages, the options are varied. Understanding these can be the first step in turning the dream of homeownership into reality, even in the face of financial challenges.

Mortgage Broker Store focuses on numerous mortgage-related products. Mortgages that don’t meet traditional lending institution requirements are one of our priorities. Our team includes private lenders, brokers, and licensed mortgage agents. Let us help you prepare for and get a private loan that meets your specific requirements. 

Email ron@mortgagebrokerstore.com or call 416-499-2122

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.

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