Different lenders serve different people according to their credit score. If your credit score is worse than 550, you will not qualify at credit unions or banks. The most common alternative is a bad credit mortgage offered by private lenders in different cities around Ontario such as Ajax, Whitby
What credit scores do various lenders need?
• To get a bank loan in Canada you need a credit score of 600+
• Trust Companies require a credit score of at least 550
• For private lenders, credit score isn’t a requirement
How to Check Your Credit Score?
Credit scores are calculated by Equifax and TransUnion; the two major credit bureaus in Canada. You can get a copy of your credit report from their official websites or have the lender pull your credit report as part of the mortgage application process. It is important to note that when any third party pulls your credit report, it will have a small negative impact on your credit score. If you failed to pay your bills, or have gone through a consumer proposal, it is highly likely that you have a poor credit score.
Private Lenders for Bad Credit Mortgages
If you need a mortgage but have a low credit score, the wise thing to do is find a private mortgage lender. Most of these lenders can offer mortgages despite a poor credit score. Banks cannot offer loans to people who have recently been in bankruptcy or consumer proposal but private lenders can overlook these issues. There is a large number of private lenders across the province whose specialty is in mortgages for bad credit. They are more focused on the property and less focused on the borrower’s credit, or job history, which are the main concern for banks, credit unions, and other traditional lenders.
Bad Credit Mortgage Approval Criteria
Rather than use credit score for mortgage approval, private lenders look at the equity in a property. Bad credit mortgages naturally have a higher chance of defaulting than traditional mortgages. Private lenders usually loan money in the form of registered mortgages which allows the lender to sell a property if a borrower is unable to make mortgage payments. When a lender sells a property under Power of Sale it is only possible to recover their investment after previous mortgages have been paid off. To evaluate how much risk is posed by a property, private lenders must calculate a metric called Loan to Value. LTV is the value of existing debts divided by the appraised value. Most lenders are only willing to approve a loan on a property with a maximum LTV of 80%.
Fees and Interest Rates for Bad Credit Mortgages
Interest rates for a bad credit mortgage are usually higher than those for a traditional bank loan and with good reason. These loans pose a higher risk and therefore attract 7% to 15% interest while bank loans charge only 3% to 4%. Besides interest, a bad credit mortgage also requires borrowers to pay mortgage set up fees. These fees are used for home appraisals, administrative work, real estate lawyers and mortgage brokers. It is advised to compare mortgage rates and terms from multiple lenders. In Vaughan, lenders are in constant competition which means you are likely to find one offering great rates and terms for a bad credit mortgage.
Improving Your Credit Score
Your credit score should automatically improve if you make a habit of paying your bills on time. The most common method people use to improve their credit scores is to use credit cards and pay them off. You can charge small payments to a credit card and consistently pay them off in full every month.
You can also get a secured credit card which will protect you from defaulting. To get this card you have to place a deposit which will be used as payment in case you forget to pay your fees. It is recommended that you always make more than the minimum monthly payment and never spend more than 60% of the credit card limit. Improving your credit card may take time, usually 6 or more months.
Brian Kondo's Home Selling System
Office: 905-683-5000 Direct: 905-683-7800 Toll Free: 1-888-413-0800
|RE/MAX First Realty LTD., Brokerage *Brian Kondo, Sales Representative|
513 Westney Road South, Ajax, Ontario L1S 6W8, Telephone: 905-683-5000