A bad credit mortgage is a term that is used when someone who has poor credit, bad credit, horrible credit, or no credit applies for a mortgage loan.
As you may have heard or read in the news recently, in 2021 Canadians are having a harder time getting approved for mortgages at their banks due to recent policy changes. Mortgages are even harder to come across if you have less than excellent credit and high income. This is where bad credit mortgage loans come in.
Bad credit mortgages in Canada are mostly available through alternative lenders and through channels that are not as well known for mortgages. Since banks and many other larger institutional mortgage lenders will only approve the lending of mortgages to individuals who have good credit, great credit, or excellent credit. It is important to understand that even if your credit is not too bad, you could still get turned away by the banks when applying for a mortgage and other mortgage related loans.
If you are consistently late on mortgage payments, if your taxes are in arrears, have an outstanding first mortgage or second mortgages, have missed payments on your mortgage or credit cards, department store cards or other debts, high revolving balances on a credit card and store cards, or if you have had a bankruptcy or consumer proposal in the last 7 years, this along with other factors can most definitely contribute to a very bad or low credit score. Based on a person’s credit mortgages will vary in rate and terms.
You may have heard in the news that given the strict regulations and policy changes, banks and most other conventional lenders must follow in today’s mortgage market, Canadians are more likely to get approved with an alternative lender, also known as a B lender, or through private mortgage lenders. At Clover Mortgage, we have access to over 40 different lenders across Canada who specialize in a variety of mortgages. These private mortgage loans and alternative mortgage lenders lend on mortgages in both major cities like Toronto, Mississauga, Oakville, Oshawa, Ottawa, and even small cities and town like the city or Barrie, London, Simcoe County, and all over Ontario.
Many of the lenders who we work with specialize in quickly approving mortgage loans for Canadian people with bad credit or low income, or self declared income. We spend the time looking for the right mortgage loans solution for your needs at the current lowest rates and best terms that are available to you.
We understand that situations happen in life and sometimes we are not dealt the right cards. Getting the right mortgages these days for borrowers with current bad credit can be next to impossible on your own. A good mortgage broker provides the services necessary to make your dreams of home ownership possible. These situations could prevent you from being able to afford making certain payments on time, and unfortunately those situations can cause scores to drop below a score that is acceptable by lenders such as banks and monoline lenders.
The professional and experienced mortgage brokers and agents at Clover Mortgage support you and understand that just because your credit is bad, or you are using your cards to hold temporary debt balances, that does not mean that you are a bad person to give first mortgage loans or second mortgage loans to. The alternative and private lenders that we work with understand that bad luck happens, and they are happy to provide temporary short term fixed rate loans to help you through the tougher points in life and get you back on track to a positive financial future.
Many of the alternative and private lenders that we work with do not place much emphasis on your credit history. Instead, they place the majority, if not all of their decision on the value, marketability, condition, and location of your property. They are looking to mitigate their risk through the property rather than through the borrower. That is why in many cases a private lender will not require a credit check at all so even credit that is bad will not hurt your chances of qualifying. This can be an ideal lender for borrowers who have really bad credit, or people who have no credit such as newcomers to Canada.
You can learn and read more about private mortgages by visiting the Private Mortgages page on our website for great educational content. Properties located in a more desirable area or city such as Toronto, Mississauga, or other more populated parts of Ontario and Canada are considered to be more marketable and easier to sell in the event that a lender is required to go power of sale. Depending on a borrower’s credit mortgages can be seen as being risky, in the event of bad credit, or less risky in the event of excellent credit. The more you please your lender’s risk tolerance, the lower the rate you will be required to pay. To help assess you as a borrower, many lenders will want to meet you before granting you a mortgage.
Although your credit history is one of the most important factors for getting approved for a mortgage from a bank, there are many non-bank lenders that do not place as much importance on a borrower’s credit score, and some lenders that place next to no importance on a borrower’s credit history.
Given today’s extra strict guidelines, more and more Canadians are being turned away by their banks for mortgages. Even if you have good credit, but are self employed you might still have trouble qualifying for a mortgage at a bank. Have no fear, Clover Mortgage is here! In most cases, we can help you get approved for the mortgage you need even if you get denied by the bank for a mortgage.
It should not come as news that different lenders offer different first, second, and even third mortgages to a variety of borrowers. Borrowers who have amazing credit will typically be able to qualify for lower interest rates than borrowers who have poor to horribly bad credit due to missed mortgage loans payments, tax arrears, past bankruptcies, or a consumer proposal. Credit is not the only determining factor when it comes to the interest rate that you will pay, your income and debt ratio also plays in the rates that you will be paying on your mortgage and other loans. Many people who are self employed and do not declare all of their earnings end up pay for it through increased interest on mortgages and other loans. Bad credit typically leads to high interest.
Interesting fact, it is 2021 and most Canadians still do not know that if they carry a balance on their credit cards or department store cards that exceeds only 30% of the limit that they have on their credit cards and other loan carrying cards, that negatively impacts their scores. In some extreme instances having too much debt and missed payments can be almost as damaging to your score as a past bankruptcy.
What are the interest rates for a bad credit mortgage?
Here is a chart that illustrates the interest rates that Canadians with bad credit or less than ideal credit may pay:
|Interest Rates Starting At*
Although the media likes to talk about what the average rates on mortgage loans are, these mortgage rates will depend on a variety of factors. Mortgage rates in a more densely populated city such as Toronto or Mississauga, could be lower than in less populated cities in Ontario or across Canada. Speak with a mortgage broker to get the latest bad credit mortgage rates. Clover Mortgage is also one of the best sources for services that compare up to date rates for good credit mortgages.
To give you a better idea of what monthly payments may be with bad credit mortgages, here are 4 different example scenarios:
It is 2021 and John is a first time home buyer and is looking to buy a new property. His search is over and he found the perfect home in a great location in Toronto and he is planning to purchase it for $600,000. He has an excellent credit score of 800, high income, and very little debts. He has $200,000 as a down payment to deposit upon closing. As a result, his mortgage broker was able to qualify him at the bank or a monoline lender for a $400,000 first mortgage at fixed 2.89% for a 1 year term mortgage that is amortized over 25 years. Due to his excellent credit mortgages have always come at a low rate for John.
John’s monthly mortgage payments (including interest and principal payments) will be $1,870.57 per month. At the end of his 1 year term he would have paid a total of $22,446.84, of which $11,100.66 would go towards paying down the principal and $11,346.18 would be interest payments. At the end of the 1 year term, John will still have $388,919.34 remaining on his mortgage.
John is a buyer purchasing the same new home and has the same $200,000 as a down payment. He still needs a $400,000 mortgage. He has a fair score which is 660, and all else remains the same. John does not qualify at the bank or a monoline lender, so he asks his broker to start looking for an alternative solution. John’s broker qualifies him at an alternative boutique lender such as trust companies. The rate that John must pay due to his credit is 3.99% fixed for a 1 year term.
Based on this information, John’s monthly mortgage payment (including interest and principal payments) will be $2,102.02 per month. This is only $231.45 a month more than he would be paying if he had excellent credit and received a fixed rate of 2.89%. At the end of his 1 year term he would have paid a total of $25,224.24 of which $9,566.81 would go towards paying down the principal mortgage balance, and $15,657.43 would go towards the interest. At the end of the year, John would still have $390,453.19 remaining on his mortgage before.
John is purchasing the new home for $600,000 and needs a mortgage of $400,000 because he has $200,000 saved up for the down payment. His credit rating is only 570, which is poor. John can only qualify at a B lender that gives John a fixed rate of 4.99% for a 1 year term starting in the summer of 2021.
In this scenario John would have a monthly mortgage payment (interest plus principal payments) of $2,324.26 which is $222.24 more than if he had fair credit. After a year, John would have paid a total of $27,891.12 of which $8,321.22 would be principal payments, and $19,569.90 would be interest payments. After the year John would still have a mortgage balance of $391,698.78.
John is purchasing the same new home and has $200,000 to give as a down payment. He still needs the $400,000 as mortgage only this time he has a very bad score of below 500 because he has a past consumer proposal and filed for bankruptcy a few years ago. As a result, John needs to get his mortgage loan from a private lender. The private lender charges John a rate of 7.49%, but the loan is an interest only loan. This means that John must only pay the interest portion of the loan without making any payments towards the principal outstanding balance.
At the end of the year, John will still have $400,000 owing as a mortgage loan, unless he opts to also make payments towards the principal on his own accord. The term for this private mortgage will also be 1 year. Since John has recently began struggling with his credit mortgages have been challenging for him over the past few years.
Based on this John’s monthly payments will be $2,496.67. After the 1 year term, John would have paid $29,960.00 of which the entire amount would be interest payments. This means that John would still have the full $400,000 left on his mortgage. If he continues like this, at this pace he will never be free of his mortgage. Fortunately, John took steps over the year to improve his score, pay down balances owing on various consumer cards and can now qualify at a B lender for a lower rate. John continues to work hard at repairing his credit and within another year his score is so good that John now qualifies at a conventional bank for a very low rate.
It is important to note that due to the higher interest rates of a private mortgage, this type of mortgage is usually short-term solutions while the client gets their credit and financial situation back on track.
One important differentiating benefit to applying for bad credit mortgages vs mortgages solutions through a bank is that the process tends to be much shorter and less time consuming for the borrower. As your mortgage broker, we will help you gather all of the documents required. Unlike a bank, a private lender requires much less documentation since their main concern is with the property itself rather than the borrower’s credit history. For your privacy, your broker will give all original documents back to you once the mortgage gets funded.
While you will get better mortgage rates if your score is good or excellent, it can take weeks and even over a month to get a firm answer from a bank in Canada. If your credit happens to be bad or poor, the process to get approved for a mortgage loan is often times less stressful and less hassle when you turn to an alternative lender. Scores of 500 or less will almost always require the help of a private mortgage lender.
Just because you have bad credit doesn’t mean you shouldn’t be able to get a loan for your home. At Clover, we are committed to helping all of our customer get approved for a mortgage that they need and helping arrange bad credit mortgages for clients with credit issues. We will set you up with a short term solution from a boutique alternative lender to help you re-establish and improve your credit score. Our knowledgeable Mortgage Agents will provide you with a solid plan to help you get back on track so that you can get approved with a bank or institutional lender in the near future.
Here are a few steps you can take to make your bad credit mortgage approval process a little easier.
Candidates with excellent credit can put down as little as 5% in some cases, however applicants with credit issues are often required put down at least 15% – 20%. The more you are able to invest in your downpayment, the more likely your lender will approve you and provide you with a preferred interest rate.
Every mortgage application requires a borrower to prove their income is sufficient enough to make their monthly payments. Most lenders use a formula called Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS) to calculate if a borrower will be able to afford their monthly mortgage payments. Bad credit borrowers should aim to keep their GDS and TDS below 30% although some lenders will still approve borrowers with poor credit who have higher debt ratios provided that they have a 35% down payment.
A professional property appraisal will give your lender a realistic estimate of the value of your home. To ensure accuracy, the lenders will typically require a specific appraisal company that they trust to conduct the appraisal. Once the property is appraised, lenders often use the Loan to Value Ratio (LTV) as an assessment tool to demonstrate how risky a loan can be. An LTV is determined by calculating the borrowed amount against the total appraised value of the property. At Clover, we work with a wide variety of lenders, some of which are willing to lend up to 90% of the value of the home or property, though 80% to 85% is more common when credit is an issue.
Getting a family member, friend, or business partner with a strong credit history to co-sign on a mortgage application will make a lender more comfortable with giving a mortgage to a borrower with bad credit.
A lender lends their money based on the likeliness that the borrower will pay back the loan in time. As a borrower’s score decreases, the risk that the lender is asked to take on increases. Therefore, certain lenders that accept a greater risk will charge a higher interest to make the risk worth their while. In order to help mitigate or lower the level of risk that the lender needs to accept, a borrower can have a co-signer who either has better credit and/or more income. The purpose of the co-signer is to guarantee the loan in the event that the borrower defaults on payments. A co-signer can be a friend and does not have to be related to you.
If you have bad credit, but a family member or friend of yours has good personal credit, they can co-sign your loan to help you get approved, and in some cases even qualify for a better rate or a more conventional lender.
If you cannot come up with the larger down payment required for clients with credit issues or are looking for a higher Loan To Value (LTV) ratio, consider adding a second property, or even a friend or family member’s property as cross collateral. In many cases the overall loan to value ratio is calculated based on both properties and their respective loans. In most cases this reduces the overall risk for the lender by decreasing the combined LTV which will often allow you, the borrower, to put down a lower down payment and will help you get a lower mortgage interest rate with better terms.
Despite the challenges associated with getting a bad credit mortgage in Canada, many Canadian lenders are willing to give applicants with a less than ideal credit score a chance. At Clover we understand how hard it can be to get a mortgage with poor credit. We pride ourselves on working with all types of bad credit applicants and helping them get approved for a mortgage or home equity loan that is the best choice for their unique situation.
The experienced and professional mortgage brokers and mortgage agents at Clover Mortgage are here to help guide you with non-biased and honest advice that is meant to help you get approved for the lowest mortgage rate and best mortgage terms that are available to you. We strive to provide you with the top level of customer service, and a quick and easy approval whether you have great credit or if you credit history is really bad. We understand that temporary life situations can cause real challenges and issues when applying for a mortgage in different situations. It is our job to search for the right mortgage to suit all of your needs.
Do not give more than required and always follow the advice of your Clover Mortgage broker
You always want to follow the advice of your Clover Mortgage broker. If your mortgage broker asks for certain documents, then send them only those documents, and send them as quickly as possible. Never send documents that your broker or agent does not request from you. Not all lenders require the same documentation. Depending on the lender, some might want to see certain documents, while others might want to see other documents. Avoid sending more documents than necessary because if a lender will want to see additional documentation, they will ask your mortgage broker, and your broker will ask you.
For privacy purposes you should only provide a photocopy or photo of you documents and retain all of the original ones.
As previously mentioned, these kinds of mortgages tend to come with higher mortgage rates since the credit of the borrower is bad. When the score is bad, the lender will likely consider the risk of default high, which is seen to be a bad thing in the lending and investment business.
Here is a list of a few pros and cons associated with a bad credit mortgage:
There are many uses for a bad credit mortgage, here are the most common ones:
Sometimes life presents us with challenges that put a lot of unmanageable stress and pressure on our finances. Credit bureaus like Equifax and Transunion keep records of late and missed payments, outstanding debts, and things like bankruptcies or consumer proposals on your credit report for various lengths of time depending on what the exact issue is.
Here is a simple list that outlines how long different delinquencies and items will be kept on your credit record:
Hard Credit Checks / Inquiries: 3 years from date posted
Judgements: 6 years from date filed
Collections: 6 years from date of last activity
Trade Items: 6 years from date of last activity
Previous High Rates: 6 years from date reported
L/S Trade Item: 6 years from date reported
Consumer Proposal: 3 years from date settled (if no settlement date is present, 6 years from date filed)
Bankruptcy: 6 years from date discharged (if no discharge date is present, 7 years from date filed)
Multiple Bankruptcies: 1st bankruptcy purges from your record 14 years from the date of discharge, additional bankruptcy purges 14 years from the date of discharge
Secured Loans: 6 years from date filed
Banking Items: 6 years from date reported
At Clover Mortgage our team of top mortgage brokers and agents works with alternative mortgage lenders who will lend up to 80% of the home’s value towards a bad credit mortgage loans. Many private lenders will lend a second mortgage on top of your first, or a third mortgage on top of your existing second.
The dollar amount of these mortgages are capped differently by each lender. Whatever the dollar amount is, if you have enough equity in your property or if the loan to value is within reason, a qualified and experience mortgage broker at Clover Mortgage can help find the solution that best suits your needs and financial situation.
Of course you can! No matter how bad your credit score is, Clover Mortgage promise to work hard to find the right lender and mortgage solutions for you. We even have lenders who do not require a credit check. That’s right, no credit checks required with certain lenders!
A bad credit mortgage is usually a short-term solution with the intention of being a temporary fix while you take the necessary steps to take your credit from bad to good so that you can qualify for a lower rate in the future. This is why the terms for bad credit mortgages typically range in length from 1 year to 2 years.
Clover Mortgage works with many lenders. In many situations, borrowers can get a same day approval for applications for bad credit mortgages, and in some cases, you can get the loan funded in as little as 48 hours.
Yes, Clover Mortgage has mortgage brokers and mortgage agents who specialize in helping individuals who have bad or bruised credit get a mortgage. Our team of experts can help find the best possible solution for your mortgage needs, whether it is helping people with bad credit needing short-term bad credit mortgages, or “triple A” credit borrowers who qualify for the lowest rates.
Clover Mortgage works with many lenders. In many situations, borrowers can get a same day approval for applications for bad credit mortgages, and in some cases, you can get the loan funded in as little as 48 hours.
Since location plays a big role in the marketability and value of a property, most lenders will look at the location of the property. Location will almost definitely play a role in the interest rates that lenders are willing to charge. Contact a Clover Mortgage broker for more information about the locations that we service.
There are many factors that are considered when assessing someone’s credit. The number 1 reason why so many Canadians are struggling with poor credit issues is because they do not know the details that affect their credit scores.
Here are a few things you can learn to do to help improve your credit score and get out of the bad credit profile:
Even if you have BAD CREDIT, we can help you GET APPROVED!
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We specialize in dealing with bad credit & bank declines. We turn a “no” into a “YES!”
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