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Best Rates on Discounted Mortgages for people with bad credit

Sometimes life goes awry, a failed business, job loss or maybe a bad divorce and your credit gets temporarily damaged. Life is full of ups and downs. There are plenty of mortgage lenders that understand that good people have bad credit and specialize in helping people get over periods of damaged credit…Read on and see how we can help!

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Strategy for Clients with Bad Credit

Lenders for Clients with Bad Credit

What Questions do lenders ask?

How to Get a Mortgage with Bad Credit

Bad credit mortgages and private lenders

Discounted Mortgages

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What is the Best Bad credit mortgage strategy

Typically your objective should be to secure a short term mortgage up to 2 yrs, during which time you repair your credit score after which you can apply for a traditional mortgage at lower rates.

How much down payment do I need to put down for a bad credit mortgage

Typically you need to put down at least 10% and more likely 15% to be approved, if you can put down more even better. The more you put down the lower the risk to the Lender so the lower the interest rate.

What Income verification do I Need for a bad credit mortgage

Lenders prefer borrowers to be in long term, permanent employment with regular income otherwise you will need as much supporting paperwork to verify income as possible.

What mortgage rate should I expect on a bad credit mortgage?

Mortgage rates on bad credit mortgages are risk based, the higher the risk to the lender the higher the rate. Mortgage rates can be as high as 20% depending on the property, borrower and current economic conditions. Every client is evaluated on an individual basis based on ability to pay back the loan.

What lender and broker fees should I expect on a bad credit mortgage?

Lender and Broker fees can total 3% of the loan amount which can be added to the loan amount.

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Bad Credit Mortgage Lenders

There’s over 100 different institutions offering mortgages in Ontario catering to every type of borrower. A large and growIng percentage of Canadians don’t qualify due to credit or income for a prime mortgage through an ‘A’ lender. There are however two other lending options available to consumers, B lending and private lending. So if you don’t qualify for a prime mortgage from a scheduled bank; BMO, RBC, etc, you can still get a mortgage.

Bad Credit Mortgages From B (sub prime) Lenders

(Trust companies, Credit Unions, Monolines)

With the debt loads that most Canadians are carrying these days and with more than 30% of working Canadians either self employed or on commission income, ‘B’ lending is a popular and proven source of lending.

B lenders are large Canadian institutions (Trust companies, Credit Unions, Monolines) offering a variety of lending mortgage products.  

B lenders still require a credit score but will allow more transgressions than ‘A’ lenders.  

Clients that fall into the ‘B’ category would be missing one of the major components that the banks and other ‘A’ lenders require such as income or good credit.  They maybe recently bankrupt, they might be self employed and do not show their income or maybe have to low of a credit score to qualify with an ‘A’ lender.  

This type of lending is often offered as a short term solution until the client either gets their good credit back or has the income to qualify through an ‘A’ lender.  

‘B’ lenders provide an excellent lending option to the consumer.  

Interest rates are 1 or 2 % higher than ‘A’ lenders. There are sometimes arrangement fees of around 2.00% to 3.00%.  

Bad Credit Mortgages From Private Lenders

(MIC’s, Syndicates or Individuals with money to invest)

These lenders are often wealthy groups or individuals who are searching for a better return on their money.  They work with lawyers or set up their own companies to loan out money to consumers.

These lenders lend on equity in the property.  They are not concerned with credit or income but will review both to get an overall feel for the applicant.  Their main interest is the property.  Private lenders will lend on properties that nobody else will such as churches, farms and raw land.  Private lenders often finance construction projects because they are more flexible than institutional lenders.

The terms are usually short and not over a 2 year period.  Interest rates are higher than ‘B’ lending between 6.00% and 20%.   

What Questions does a bad credit mortgage lender ask?

  • Where is property? :- most bad credit mortgage lenders have clearly defined geographical territories that they are familiar with and loan to.
  • What type of property is it? :- single family home, rental, duplex, condo, farm, ranch, commercial, industrial etc.
  • What is the loan to value (LTV) and loan amount?  
  • What type of transaction is this? :- refinance, purchase, renewal.
  • How was the value determined? :- tax assessment, realtor valuation, appraiser, other.
  • What is the financial situation of the borrower? :- bad credit, insufficient income, newly employed…
  • Why don’t they qualify conventionally? :- new to Canada, divorce…
  • What is the exit strategy? :- How will the loan be repaid and when?
  • Other info to help the lender grant the loan :- remember the lender wants to make the loan but only if satisfied it will be repaid.

..having the answers to most or all will expedite your loan application.

What is defaulting on a mortgage?

A mortgage default means that you violated one or several of the terms of your mortgage agreement. Your mortgage agreement is a contract that lists all the terms and obligations of your mortgage. The most obvious default is failure to make a required regular payment. However, a number of other things can be classified as defaults as well. These include:

  • failing to have adequate insurance on your property
  • failing to pay your property taxes
  • putting another mortgage on the property
  • failing to keep the premises in a reasonable state of repair, and
  • selling the property without the bank’s consent.

Because the home is the bank’s security for the mortgage loan, it has an interest in maintaining the home’s value. Failing to have proper insurance or failing to pay property taxes, for example, can jeopardize the value of the property.

What happens if you default on your mortgage?

Financial institutions have a number of options once a mortgage has gone into default. The bank or mortgage company may first send you reminder letters or call you. It will usually then send you a demand letter, which demands payment of the outstanding balance. If you still fail to pay, the bank can take possession of the property, and ultimately sell the property under the terms of the mortgage agreement or by foreclosure. Any costs incurred by the bank when selling your home is added to the amount that you already owe.

If you cannot make the mortgage payments, but your home is worth more than the outstanding balance of the mortgage loan, you may want to sell the property. This way, you will be able to pay off the financial institution and still keep the equity which is the difference between the outstanding loan amount and the amount you received when you sold it.

Defaulting on your mortgage can lead to a range of serious consequences. If you are experiencing financial difficulties, before allowing a default to occur, it is a good idea to contact the institution that holds your mortgage.

If you cannot make your mortgage payments and cannot reach some agreement with your financial institution to deal with the situation, you should seek advice from a lawyer. Your lawyer may be able to delay or prevent you from losing your home.

How to Get a Mortgage with Bad Credit

Before a lender will grant a bad credit mortgage or bad credit mortgage refinance, they must first be comfortable the applicant is not a financial risk. Bad credit mortgage qualifications vary from company to company. The following are a few common criteria:

A bigger minimum down-payment

With perfect credit, it is possible to get a mortgage with as little as 5% down. If you have bad credit, most but not all mortgage lenders will increase this minimum to 15% of the value of the home. The higher your downpayment, the more likely it is that you will qualify for a bad credit mortgage because the lenders exposure is less.

Proof of sufficient monthly income

In order to qualify for any mortgage you must be able to prove that you have enough income to repay the money and that you’re financially capable of handling a home mortgage. In order to figure this out, lenders will want to review your gross debt service ratio (GDSR), which is the percentage of your gross monthly income that can be used for housing costs (mortgage payment, utilities, and property taxes). Mortgage brokers usually want the bad credit mortgage seeker to keep their GDSR under 35%; under 30% is even better.

A professionally appraised property value

Before a lender will give you a mortgage, they will require proof from an appraiser that your potential home is worth more than the mortgage amount. So that if for some reason you are unable to make the mortgage payments the lender can take possession of the property and sell it to recover their investment.  

A reliable co-signer

Even with a good downpayment and steady income, mortgage lenders often require a co-signer to guarantee a bad credit mortgage. A co-signer gives the lender added protection as the co-signer will be responsible for the mortgage if you don’t make the payments. If you can ask a friend or family member who has good credit to co-sign on your application.

Summary

If you have bad credit, no credit, or have filed bankruptcy in the past you can still get a bad credit mortgage or bad credit mortgage refinance.

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