If you’re a homeowner or a potential home buyer that has had a difficult time with credit in your past, you may be able to get some help. The mortgage industry in Canada is very competitive as more lenders are trying to reach new mortgage clients. One way they are doing this is by targeting bad credit mortgage clients. These lenders aren’t the mainstream lenders that you will usually find. These are mortgage banks which specialize in lending you a mortgage and some of them are in the bad credit mortgage market.
Canadian Banks and Bad Credit Mortgages
Canadian banks usually won’t allow those with poor credit to borrow from them because they have investors. If investors knew they were providing loans to those with bad credit, they wouldn’t be very happy and wouldn’t want to invest in those institutions. Since banks are responsible to their shareholders, they usually ask those with bad credit to seek their mortgage elsewhere.
To get financing the 1st mortgage must be up to 80% of the value of the home or it must be a combination of a 1st and 2nd mortgage. If the loan goes above the 75% threshold, the first mortgage will go through an institution and then the 2nd mortgage is through private lending sources. If the credit is bruised, but acceptable then the lender can consider providing one mortgage that is up to 85-90% of the value of the home in some cases.
Bad Credit Qualification Requirements
To qualify for a bad credit mortgage, you need:
Equity and Minimum Down Payment
If there is a bad credit problem, the down payment is important. If you have a mortgage loan that goes to collection, the down payment is a safety net for the lenders as they go through a legal proceeding to gain repossession rights for the home. Lenders look for 15% of the value of the home for equity and down payments. In some cases, 10% is enough for this. The amount agreed to will depend upon how the applicant meets the qualifications such as how badly damaged their credit is and their current income.
The Income Requirements
Income requirements must be reasonable for the loan. The person applying for the loan must be self-employed or working on a regular basis to keep money coming in. the income requirements will be flexible as the equity and the down payment increases. Income requirements don’t need to fit in with TDS/GDS calculations. It can be a bit more difficult for those that are self-employed to obtain financing as they often don’t have enough taxable income to meet current guidelines, so they often have to go for bad credit mortgages to obtain appropriate financing
Requirements for Properties
For a bad credit mortgage, the property is a vital component. A lender is lending money based upon the value of the home. They want to ensure that the property is marketable and a decent piece of real estate. Because the lender wants to be protracted in case there is a default. They will evaluate the appraisal of the property by using an appraise and if their requirements aren’t met, they won’t approve the loan. In an urban center, it tends to be easier to get financing while a farm in rural areas of Canada would be harder to finance as there are more buyers for urban real estate and a reposed home can be liquated faster if there happens to be a problem.
Requirements for Credit
You need a credit rating as this is the minimum requirement. Lenders will have various thresholds that they rely on. Some will want any bad debts that you have to be paid before they issue you any loans. Other lenders won’t care as long as the equity and down payment is increased to 20% instead of the standard 15%.
Previous Bankruptcies
If you had a bankruptcy before, you may still be able to get a mortgage. The down payment that you make will determine the amount that you’re approved for. You usually need to be previously bankrupt and be discharged for two years for two years before you get an insured mortgage with a 5-10% down payment. You also need an established credit after the bankruptcy, but the process isn’t as difficult as it seems. Many lenders will offer secured credit to those that have been bankrupt before. If the two years post-bankruptcy hasn’t passed yet, then you must have a minimum of 15% of the home purchase price or mortgage financing won’t be available to you. Financing will be in be 1st or a 2nd mortgage which is up to 85 % of the home value.
Fees for Brokers and Lenders
Banks tend to compensate lenders for the mortgage of “A” clients. In bad credit situations, compensation for the broker to secure financing is paid by the client and negotiated between the borrower and the broker. Fees are determined base upon the risk for the lender. Fees may be reduced if you agree to a higher rate.
Summary on Bad Credit Mortgages
You can get a mortgage if you have bad credit or are considered a “bad mortgage client.” Make sure you speak to your lender about all the options available to you which may meet your current needs.
