At times, Ontarians face financial setbacks. No one is immune. Many have experienced a squeeze in their finances during this last year. If not through a direct job loss or layoff, we have probably seen friends go through it. The pandemic disrupted routines and finances, prompting us to adopt daily habits drastically amid its grip.
Ontario homeowners may face challenges juggling mortgage payments alongside other expenses in this tough period. Maybe you have also experienced a dip in your credit score due to the economic burden. It is essential to understand that a credit score (Beacon Score) is simply a number that reflects current credit circumstances. Discover our insider tips for applying for bad credit mortgages.
How Can I Apply for a Bad Credit Mortgage?
Your credit report is essentially a snapshot of where you are credit-wise. Remember that there are ways to increase your credit score moving forward, such as using credit wisely. Clearing high-interest cards, consolidating debts into one manageable payment, and consistently paying bills on time ease financial stress.
If you are looking to refinance your current mortgage or obtain a mortgage with a damaged credit score, Ontario private lenders will be able to help bridge the gap and work to arrange a mortgage despite current credit issues.
The major reporting agencies in this country are TransUnion and Equifax. TransUnion offers services to empower users with financial literacy and protection, including credit monitoring with actionable recommendations, daily credit report updates, debt-to-income ratio analysis, and identity theft protection with dark web monitoring and risk alerts. Check your credit report regularly, especially during economic challenges, to review reported bills and maintain financial awareness. Take this information and work to rectify your credit standing moving forward. You can download a copy of your credit report through the Equifax and Transunion websites. Mortgage Broker Store could also help you obtain your credit report.
Credit scores range from 300 to 900. A score below 300 indicates very poor credit, while over 800 is exemplary. Banks need a score of 600, credit unions may negotiate at 550, but lower scores seek alternative mortgage options.
When Ontario borrowers’ scores don’t qualify for bank loans, they turn to private lenders for alternative financing solutions. In Ontario, borrowers can approach an individual private lender or a group of private lenders. Mortgage Broker Store has access to a network of well-established private lenders who can negotiate a private bad credit mortgage loan despite credit issues.
What Exactly is a Bad Credit Loan?
So, what exactly is a Bad Credit Loan? Bad Credit mortgages are registered mortgage loans approved on criteria other than your Beacon Score or overall creditworthiness. Generally, these mortgages are shorter-length mortgages with higher interest rates, set-up fees, and closing costs than standard mortgages.
Private lenders will lend out private bad credit loans based on the equity built in your home or other assets that can also be used as leverage. Lenders consider investment income, spousal/child support, and contracts when qualifying borrowers for bad credit loans.
Private lenders typically need 20% equity in your property for second mortgages, refinancing, or home equity loans. For a primary mortgage, private lenders often require a minimum 25% down payment to mitigate risk effectively.
Steps to take into consideration when applying for a bad credit mortgage loan:
- Research your options– look into the options that may be available to you. Mortgage Broker Store can help you with any questions and direct you to a well-established network of private lenders to look into.
- Prepare all necessary paperwork- As in any application process it is necessary to gather and bring all relevant documents to your meeting with a private lender such as a recent appraisal of your property, proof of existing assets, proof of all sources of monthly income.
- Be willing to explain to your lender why you need a bad credit loan- your private lender will need to see your reasons for applying to assess your capability to pay back the loan. Your lenders will be calculating the Loan to Value (LTV) in your property and will not lend out funds that exceed a 75% LTV which represents 75% of the appraised value of your home.
Pros and Cons
A bad credit mortgage has both pros and cons:
Pros
- Band credit mortgages represent an excellent solution for financing when a borrower can not qualify for traditional loan- Private bad credit mortgages can be used to establish good credit standing and help to qualify for a traditional loan at the end of the mortgage term.
- Short-term– Private loans often require only interest payments throughout the term, providing borrowers with flexibility and avoiding locking them in.
- There are a variety of bad credit loans to be used for different purposes– Bad credit loans can take the form of refinancing primary mortgages, home equity loans, Home Equity Lines of Credit (HELOCs), second mortgages, bridge loans, or consolidation loans. Loan options cover diverse needs: home renovations, high-interest debt payoff, mortgage refinancing, tuition, or startup expenses.
Cons
- Higher set-up fees- Negotiating a private bad credit registered mortgage loan comes with fees that relate to the set-up of the loan. Fees with private loans are often higher than traditional ones, and additional fees may apply, necessitating careful consideration.
- Higher Interest rates- Bad credit mortgage loans are considered a higher risk loan due to credit issues, and therefore, the interest rates attached to these loans are higher than those charged by the larger banks. Interest rates associated with these loans tend to be between 7% to 15%.
How Long Does Bad Credit Stay on Your Record?
It is important to keep in mind that by taking steps to improve your credit score your score will increase. Paying bills on time, clearing credit cards, and responsible credit use improve creditworthiness and overall credit standing significantly.
After bankruptcy, it takes 2 years for improvement and 7 years for debts to be removed from credit reports.
If you have bad credit, a mortgage loan can bridge the gap while repairing your credit. A private loan covers immediate expenses and can refinance mortgages or consolidate debts for better financial management.
Mortgage Broker Store Can Help in Your Search for Bad Credit Loan Options
Mortgage Broker Store can help connect you to an appropriate private lender to meet your mortgage needs. Prioritizing understanding borrowers’ needs and striving to find the best mortgage and financing solutions for each individual.
Guiding clients nationwide through private lending and connecting them with our trusted network of lenders. To obtain a bad mortgage loan, feel free to contact Mortgage Broker Store at your convenience. We will steer you in the right direction. If you’d like a free consultation on your situation, call 416-499-2122 or email ron@mortgagebrokerstore.com, and we will get back to you the same business day.
