How To Get a Mortgage Loan With Bad Credit?
Do you have bad credit and want to buy a new home? Are you looking to refinance or renovate? If so, there are creative mortgage options at your fingertips.
Forget everything you think you know about mortgages and bad credit. You can get a mortgage with bad credit!
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Essentials To Help You Discover the Right Option for You
Let’s explore all the opportunities and some of the of most important processes.
Can You Buy a Home in Canada With Bad Credit?
YES! Regardless of what others might have led you to believe, you can in fact get a mortgage with bad credit.
In fact, some B lenders or private lenders won’t even check your credit. To find the right terms that meet your budget, you’ll want to explore all the options, as there are a few to choose from.
Can You Get a Mortgage With a Credit Score of 450 or 550?
Commercial banks and A lenders offer traditional loans as options for people with fair to excellent credit scores. You most likely found your way to this article because you suspect that you are not one of those.
But hey now, don’t you fret! There are some sound options for those with not-so-polished credit scores.
Lenders that lend so-called term B loans, also known as boutique lenders or private lenders are great options for people with poor credit scores.
B lenders usually offer alternative mortgage loans to those with a score of 550 or below.
How To Get a Mortgage With Bad Credit?
The process can be fairly simple, you can apply and get a free consultation.
- Find a bad credit mortgage broker
- Choose the right lender for you
- Decide on a down payment
- Submit documents
- Get the terms and interest rate
Most deals can close within 48 hours.
Pro’s & Cons of Bad Credit Mortgages
It’s always beneficial to look at the pros and cons before obtaining a loan from a B lender.
- Approvals can be fast and easy, sometimes within 48 hours.
- Some lenders don’t require credit checks, as they value the property or use collateral.
- A loan from a boutique lender can allow you to rebuild your credit and pay off other debt.
- B lenders often incur broker and insurance fees.
- The term length for a bad credit mortgage can be from 6 months to 2 years.
- Higher interest rates are offered compared to an A lender bank loan and those with good to excellent credit.
Tips for Anyone in Need of a Bad Credit Mortgage in Canada
What was relevant last year, may not be any longer. That’s why it’s best to stay informed and get the most up-to-date facts.
- Credit Score Evaluations
- Debt to Income Ratios (or DTI’s)
- Downpayment Options
- First-Time Homeowners Deductions
- Land Transfer Tax Brackets and Credits.
- Home Inspection (optional but recommended)
- Home Appraisal (mandatory)
- CMHC or Genworth for High Ratio Mortgages
- Closing Costs and Legal Fees/Disbursements
- and others…
But most importantly, DO YOUR RESEARCH! Take notes, ask, questions and get 2nd/3rd opinions on what options are available to you.
This will usually be dependant on your income, your spousal or partner’s income and/or the type of employment you are categorized under. Do these things and leave no stone unturned so that you will truly feel confident that you have made an educated decision.
How To Find Bad Credit Mortgage Brokers?
With any life-changing decision related to your finances, it’s always important to work with someone that you can trust.
Frequently Asked Questions
Commercial banks and AAA lenders tend to directly pay mortgage brokers. Since this isn’t the case, there are fees you should be aware of. Additionally, there are insurance fees passed on to borrowers as well.
Borrowers can expect to be charged a broker’s service fee. This fee can range and as of 2021, most brokers charge about 1.3% on a 5 year fixed mortgage.
Here is a useful tip; remember that you can negotiate. Your leverage is there, find it. There is usually someone in the market willing to earn your business for a slightly reduced rate, especially when you directly mention another broker you are in touch with.
While no one wants to pay above and beyond, this is a standard fee. Luckily it is taken from the advance of the mortgage and not paid until a deal is closed for most deals.
Canada Mortgage and Housing Corporation (CMHC) insurance fees can range from 0.60% to 4.00% with loan values from 65%-95% respectively.
Here is a helpful tip; select provinces are subject to provincial sales tax.
An average down payment for homeowners that receive loans from B lenders ranges from 15-35%. Many factors come into play here. While most B lenders will encourage you to put as much as possible for the down payment, this is not advised.
When committing to 15-20% you can expect an interest rate that ranges from 3.5% – 8%.
Many financial experts will argue that you can pay the minimum down payment possible, lock in a lower interest rate and attempt to earn more from alternative investments. In this case, when people with bad credit are considering how much to pay for their down payment, we recommend finding the sweet spot.
To find the amount that works for you, you need to test multiple scenarios. Ask the lender for various price points to see when or if the interest rate will get lower. Make sure the down payment works for you, as you will have other expenses shortly.
In need of a renovation? It’s very popular right now to refurbish basements and upgrade kitchens. Especially since the price of lumber is going down of late. A home equity loan, also known as home refinance or equity takeback, does offer lower interest rates than a home purchase. This is also true for those with bad or poor credit.
It’s possible to transfer your current mortgage with the same terms to your new home purchase. This can save you money as you may have received a very competitive interest rate, to begin with.
This method allows you to avoid prepayment fees that can be applied to anyone that breaks a mortgage early.
A helpful tip, ask your bank or lender if you can sign over your current mortgage to the new homebuyer. This is a benefit for all parties, as banks or lenders can earn a new client, the terms could be better than what’s being offered today and it will save you the early exit charges.
Do you already have several loans? This method can reward you for essentially merging multiple loans into one. By taking out a bad credit mortgage loan, you use those funds to pay off several other loans.
To take advantage of this, ask your lender for either the amount you owe or more money. Many with bad credit are often faced with high interest, especially from their credit cards. Refinancing your mortgage loan, even with bad credit, will often be better than continuing to pay hefty monthly interest.
Most lenders will offer up to 80% of the home’s appraisal minus the mortgage that remains.
Are you in a relationship? Does one of you have poor or bad credit? If so, it’s best to leave that person off the new mortgage. The person with good credit should apply for the mortgage and they will get a more attractive loan.
Document Preparation for Bad Credit Mortgages
Speed is of the essence. Make sure you provide your documents as quickly as possible. Do your homework before reaching out to the lender to find which documents may be necessary. Make sure you have access to a computer, printer or photocopy machine.
Additionally, when lenders request certain documents, ONLY provide what they request. Do not, we repeat, do not provide more than is necessary. This can delay or sometimes hinder the process.
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Interest rates, fees and rates can vary over time and are subject to change. Terms and conditions apply.