At times many Ontarians face financial setbacks. No one is immune. Many have experienced a squeeze in their finances during this last year in particular. The Covid-19 Pandemic has touched everyone in some way. If not through a direct job loss or layoff, we have probably seen friends go through it. Routines have been upended, finances tested, and we have had to completely modify our daily routines as the Pandemic has taken its grip.
If you are an Ontario homeowner maybe you have had difficulty contemplating paying your ongoing mortgage payments while paying for other needed expenses during this difficult time. Maybe, you have also experienced a dip in your credit score as a consequence of the economic burden. It is important to understand that a credit score (Beacon Score) is simply a number that reflects current credit circumstances.
How Can I Apply for a Bad Credit Mortgage?
Your credit report is essentially a snapshot of where you are credit-wise. Keep in mind that there are ways to increase your credit score moving forward by using credit wisely. Paying off high-interest credit cards, consolidating debt to allow for one debt payment that comfortably works with your monthly budget and reliably paying bills on or before the due date.
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 Equifax and Transunion. It is always a good idea, especially in these economically trying times, to obtain a current credit report to see what billers have reported. 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.
Your credit score is rated between 300 to 900 with 300 considered to be very poor credit standing and anything over 800 considered exemplary. The big banks require a credit score of at least 600 and while credit unions may be able to negotiate a mortgage with a current score of 550, this leaves borrowers with lower Beacon Scores looking to other alternatives.
When Ontario borrowers have credit scores considered too low to qualify for traditional loans through the major banks and credit unions, they need to employ the services of private lenders. 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.
So what exactly is a Bad Credit Loan? Bad Credit mortgages are registered mortgage loans that are 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. All sources of income, including any investment income, spousal and child support income as well as all contract income will also be factored in to qualify for a bad credit loan through private lenders.
Generally, private lenders will require at least 20% equity built in your property to qualify for a second mortgage, refinancing, or home equity loan. If you are looking to obtain a primary mortgage, a private lender will likely require you to prove that you have at least a 25% down payment to help offset risk.
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 of Bad Credit Mortgages
A bad credit mortgage has both pros and cons:
- Band credit mortgages represent a great solution for financing when a borrower can not qualify for traditional loans. –The 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– A private loan does not lock the borrower in and often just the interest payments need to be paid during the term length of the loan
- 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. The various loan options provide an opportunity to pay for differing needs such as home renovations, paying off high-interest credit cards and other loans, refinancing an existing mortgage property, or paying for tuition or start-up business needs.
- Higher set up fees- Negotiating a private bad credit registered mortgage loan comes with fees that relate to the set up of the loan. These fees tend to be higher than the fees charged with traditional loans and there may be more fees to consider.
- 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. By demonstrating creditworthiness by paying all bills on time, credit cards in full, and being responsible with your credit, your credit standing will improve.
If you have had to declare bankruptcy and have major debts outstanding, it will take at least 2 years to see improvements and after 7 years all debts are wiped off your credit report.
A bad credit mortgage loan will help to bridge the gap while your credit is repaired. A private loan will allow you to pay for immediate expenses as well as maybe refinancing your mortgage terms or consolidating multiple debt payments.
Mortgage Broker Store Can Help in Your Search for Bad Credit Loan Options
Mortgage Broker Store can help connect you to an appropriate private lander to meet your mortgage needs. We understand the needs of the borrower and we are always striving towards finding the best match when looking at your particular mortgage and financing needs.
We work with a network of private lenders across the country and are more than happy to guide you in important decisions that you will be making during the private lending process. To obtain a bad mortgage loan, feel free to contact us at your convenience. We will steer you in the right direction in your mortgage search.