Our lives are filled with a variety of obstacles and challenges. Sickness, unemployment and large unexpected expenses are just a few things that can throw our financial lives off course and impair our credit scores.
Having bad credit can make getting a mortgage difficult and with a higher cost, but we're dedicated to providing you with your best rate and mortgage product for your needs.
Although you may not qualify with traditional lenders, the alternative mortgage market offers secured loans that are designed for Canadian borrowers with impaired credit scores.
What defines bad credit?
An individual with a credit score less than 630 and with a serious credit issue remaining on file.
There are two essential ways to qualify for a mortgage with bad credit: through sufficient income and a higher down payment or home equity.
One of the main staples to your mortgage approval is proof of sufficient income. Lenders use your income verification to qualify you by offsetting the risk that confirming you earn enough money to repay your mortgage in a timely manner.
Higher Down Payment (only applicable to purchase mortgages)
The next staple to getting approved for mortgage financing, if applicable, is a larger down payment. The larger your down payment, the greater the chances you'll get a approved. The size of your down payment will help offset the risk of you defaulting on your mortgage, with a smaller loan, you'll have smaller payments. A borrower with bad credit may have to provide a down payment of 15 - 20%, while borrowers with good credit can provide as little as 5-10%.
Home Equity (not applicable to purchase mortgages)
Since property is used as security for a mortgage, a reasonable chunk of your home equity will help your chances of qualifying. In short the more equity you have the more you'll be able to borrow and the greater the chance a lender will accept your application.
Using a mortgage broker is essential for getting qualified for a mortgage despite bad credit. We help Canadian borrowers find competitive rates and terms. We have access to a variety of alternative lenders and selection of borrowing solutions. We save you the time, effort and money spent shopping for a mortgage, and we have access to a variety of lenders that only deal through mortgage brokers.
Unlike a financial institution who works for one lender, we work for you. We have access to many lenders and products giving you a better, efficient selection when shopping for a mortgage. We are mediators between the lender and you, while although we work to service the lender with the best possible borrower, we work for you to provide the best mortgage and rate for your financial needs and goals.
With impaired credit you can get mortgage financing through an alternative lender. As a long-standing and successful mortgage brokerage, we work with Canada's best alternative lenders. The alternative mortgage market, also known as B-type lending and/or sub-prime mortgage market, is mortgage lending to borrowers who have impaired credit.
Mortgage rates offered by alternative lenders are not the lowest available in the market, hence the term sub-prime borrowing. An alternative lender charges a higher interest rate to offset the risk of lending to a mortgagor with bad credit. This doesn't mean that we won't find the best rate that you qualify for.
You might be wondering why people borrow at a higher rate. In some cases a borrower has no choice but to accept that their best rate is a little higher than the prime-lending rates. Sub-prime mortgages carry a lower interest rate than a credit card and even a low rate line of credit, making alternative mortgages perfect for consolidating debts into one convenient payment with a lower accumulation of interest.
An example of how impaired credit mortgages can be priced:
You need to provide proof of your income. This can be provided through a variety of documents such as bank statements, employment letters and pay stubs, income tax returns or account invoices if you're self-employed. The lender requires this to ensure that you can afford the repayment of your mortgage loan.
Credit Score and LTV
To qualify for alternative lending your credit score will be between 400-630. The interest rate of your mortgage is determined by your credit score in combination with the LTV (Loan-to-Value) ratio. LTV is exactly as it sounds, the total mortgage amount secured by a property in relation to its value.
A mortgage with 80% LTV and a credit score of 570 will have a higher interest rate than a mortgage with 70% LTV and a credit score of 570. While a mortgage with 80% LTV and a credit score of 570 will have a lower interest rate than a mortgage with 80% LTV and a credit score of 480.
A lender uses your home as security for the loan they lend to you, that's why the property is the most important and essential qualification for alternative and bad credit lending. Although your income and credit are qualifiers for financing, the value of your property is the main security for bad credit lending. An appraisal is required to prove that your property is in reasonably sound condition.