If you have experienced financial troubles in the past and you now have a poor credit rating, it does not necessarily mean a mortgage for a new home is completely out of reach. Whether you went through an unfortunate divorce, your small business failed and resulted in bankruptcy, you lost your job or defaulted on your loans, you still have options regarding mortgages. Talking to a mortgage broker will help you plan a realistic course to a new home through a new, reasonable mortgage, giving you and your family the chance at a new future. Mortgage brokers have direct connections with hundreds of different lenders who are willing to lend to people with poor credit ratings.
The reality of today is that bad credit mortgage approvals are becoming more and more common as the mortgage market becomes more competitive.
Can I qualify for a Bad Credit Mortgage?
There are different mortgage loans available to customers based on their income and credit profile, down payment, as well as other factors. Quick Equity Loans can help arrange a larger downpayment for clients with poor credit, this additional downpayment will make it easier to qualify for a first mortgage at competitive rates.
Is it possible to get a mortgage with bad credit in Canada?
While most banks consider customers with poor credit to be a high risk, there are lenders who are willing to extend loans to clients, regardless of their payment history. One available option is to contact online bad credit mortgage lenders or finance services in your area. These lenders usually take into account factors such as type of employment, income range, and whether the applicant is a first-time buyer.
What is the qualification process for a Mortgage in Canada if I don’t have Good Credit?
If you have poor credit, there are secured loans that are specifically designed for borrowers with bad credit. One of the most crucial factors that lenders look into is proof of sufficient income. Financial institutions want to ensure that applicants earn enough to make timely payments. It is important to note that lenders also require a higher down payment because they deal with higher risk clients. Customers with good credit scores are often offered competitive terms, and their down payment can be as low as 5 – 10 percent. Clients with poor credit, on the other hand, may have to put 15 – 20 percent down. The higher the down payment, the greater the chances of being approved for a mortgage loan. Furthermore, a reliable co-signer with a reputable payment history may be required as well.
How To Get Approved For a Mortgage With Bad Credit
Any lender considering a poor credit mortgage application will need to assess the applicant in order to determine their level of risk. Every bank or lending agency has a different set of criteria they deem necessary to determine if a client should or should not be approved. Some of the most common requirements for approval are listed here:
- A LARGE DOWN PAYMENT – With clients who have a perfect credit rating, most lenders will require at least 5% down on any new home purchase. If you have a bad credit rating, the down-payment can increase to 15%. However, it is essential to remember that the more money put down, the greater your chances for mortgage approval. Quick Equity Loans can help arrange a larger downpayment for clients with poor credit, this additional downpayment will make it easier to qualify for a first mortgage at competitive rates.
- PROOVE YOUR INCOME – In order to qualify for any mortgage, the applicant is required to provide proof of income in order to demonstrate that they have the ability to pay off their loan. Lenders will usually use a formula called a Gross-Debt-Service-Ratio (GDSR) to determine how much of your monthly income will be used to pay off your mortgage. GDSR, is calculated in percent essentially shows what percentage of your income you will be used to make payments on your mortgage every month. While most lenders will approve a poor credit mortgage with a GDSR of approximately 35%, it is recommended that home buyers keep their GDSR below 30%.
- GET YOUR PROPERTY PROFESSIONALLY APPRAISED- If you default on your loan, the lender has the legal right to take control of your property and sell it in order to recover their money. This is why the lender will require a professional property appraisal. Lenders need ensure that the property is worth more than the amount requested for the mortgage.
- FIND A CO-SIGNER – If you have poor credit, a lender is much more likely to approve a mortgage if you have a trusted friend or relative who is willing to cosign for you. A reliable co-signer reduces the lender’s risk because if you are unable to make payments on your mortgage, the cosigner will be required to make these payments in your place.
If you have bad credit, or no credit, your chances of receiving a mortgage for a new home are still good – but only if you apply through the right places and follow the correct steps. A mortgage broker can help you through this process, and can drastically improve your chances of obtaining the mortgage you need.
Only Buy What You Can AFFORD.
Since the down-payment on a mortgage is a specific percentage of your property’s value, you may want to set a realistic price range based on the maximum down-payment you can afford. Your debt to income ratio (DTI) is also a crucial consideration because a high DTI illustrates that you may be unable to meet your monthly payments. When looking for new homes, take account of your housing expenses and factor in costs such as condominium, cooperative, or homeowners association fees, , property taxes, hazard insurance, interest charges, and principal amount. Potential lenders will also look at your total debt ratio. They will factor in recurring payments such as alimony and child support, vehicle leases and loans, student and consumer instalment loans, as well as credit cards.
While many applicants apply for mortgage loans with banks or credit unions, bad credit borrowers are often turned down and need to look for alternative solutions. The good news is that there are bad credit mortgage lenders that offer both fixed and variable rate solutions to clients with various credit profiles and payment histories. Subprime lenders will offer loans with different repayment options to high-risk applicants. This is why many lenders require a substantial down-payment and proof of income before approving a mortgage. Subprime mortgages are also available to clients with a history of delinquencies, foreclosures, arrears and defaults who have few other options left to finance the purchase of a home.