I’m going to be talking about mortgages for those with a little bit of challenging credit score situations or, more negatively, referred to as bad credit.

First of all, I want to clarify bad credit; I am not talking about those with a credit card, and they might have been a few days or a week late on making their minimum payment a few times over the last five years. I’m not talking about those folks at all, even if you’ve had, say, a collection from a traffic defence or a cell phone contract go to a collection agency, but you pay the collection off right away. Well, I’m not talking about those people either those are not considered challenging or a bad credit situation. If you’ve had loans and credit cards in your name and they’re open and active, and you’ve had a couple of other little credit bumps like that; those things aren’t gonna drag your credit score down by very much at all.

Mortgages for Bad Credit

What I am referring to as bad credit is those with habitual late payments ongoing for years, missing payments being late, going over the limit on lines of credit and credit cards having multiple collections that have gone unpaid, having a bankruptcy, consumer proposal or gone through credit counselling. These are the people that I’m talking about today. I’m gonna break down mortgages into two different categories when it comes to bad credit. First of all, we’ll talk about those for purchase of a home, and then I’m gonna be going over mortgages for a refinance where you already own the home. So you’re looking to take out a mortgage refinance of a house to address this bad debt if it’s mortgage refinancing that you’re most interested in.

How to get a Mortgage on Bad Credit

So first we’ll go over home purchases also two different categories; the first would be for those with less than 20% down payment mortgages for the purchase of a home with less than 20% down payment you still have to have a fairly stable credit to be approved for a mortgage like that the minimum Beacon score or credit score they basically mean the same thing for you to get a mortgage for the purchase of a home with less than 20% down is 600 now that 600 is the bottom bar you’re going to have to have maybe a little bit more than that if your credit score is it 600 there’s probably a good reason for it, and it’s a good idea for us to take a look at it and see exactly why it’s at 600 which is considered low if your credit score is over 600 and you’ve had perhaps a collection or something fairly minor, and you’ve either paid it, or you’re about to then you should still be approved for a mortgage at fully discounted broker rates, there shouldn’t be too much concern over that sort of a minor thing if, in addition to a collection on your credit report over and above, say a 610 or 620 credit score and you’ve missed quite a few payments over the last few years well you might have a little bit of difficulty and you might need to have a cosigner or up your down payment by a little bit from the bare 5% to maybe 10% or maybe a 15% down payment the cosigner has to be somebody with good strong credit and good strong income and provable income to be considered as a cosigner quite a few of the lenders that I work with will allow a cosigner to be removed after one year easily and perhaps even two after the credit has stabilized.

You’re looking to purchase a home, and your credit score’s under 600; well, you need something more than just a cosigner if your credit score is under 600; more than likely, your name will be allowed on the

mortgage if you have less than 20% down payment, so ideally, what we’ll do is whoever would stand in as the cosigner would take out the mortgage in their name. Then once a couple of years go by and your credit is stabilized, you can assume or take over the mortgage from that person later on another way to address a purchase mortgage where your credit score might be a bit low is increasing your down payment. Getting your down payment to the 20% level opens up the list of lenders that I’m able to use quite a bit.

Bad Credit Mortgage Brokers Ontario

Any mortgage broker in Canada will have access to quite a few lenders that will assist a client in a situation with a credit score below 600 with 20% or 25% down payment in a purchase mortgage. Now let me qualify for those with bankruptcy and that sort of thing; if you’re currently in bankruptcy or a consumer proposal or a credit counselling, you are basically in credit limbo. Applying for any new credit while you’re in one of these things is certainly not advisable and probably a waste of time. Anyways so you wouldn’t even be approved now home purchase with 20% down or more, I’m sure you can figure out that that’s an easier process. Your credit does not have to be quite as good as if your down payment was less because you’re not dealing with one of the mortgage insurers like CMHC or Genworth their rules and guidelines are pretty strict that bare 600 Beacon score is what they stick to, so even if you’re at 580 or 585 or something like that they’re going to want to see the credit score come up or add a cosigner or significantly increase your credit score. Keep in mind that the lower your credit score, the more down payment you might have. If your credit score is significantly lower, closer to 500, the down payment of 20% might not do it. You may need to come up with a 30% or even 40% down payment to get a mortgage just in your name without a cosigner, and when you’re dealing with the lenders that are willing to take on those high risks comes higher rates and higher costs for you, unfortunately.

Mortgage Lenders for Bad Credit Ontario

The lenders that we work within these higher risks scenarios for those with difficult credit situations normally only lend in major cities they’re not looking to what mortgages on to houses and small towns or on acreages, so it’s in your best interest to keep your credit nice and clean and keep your score as high as possible especially when you’re about to apply for a mortgage if you’re looking to purchase a home it doesn’t matter how much down payment you have if you’ve got outstanding collections or judgments against you those accounts are more than likely going to have to be paid in full before getting the mortgage. Suppose you have significant difficulty with lots of collections and any other issues that might happen. You may need to pay those and then let your credit rehabilitate for a little while before you be considered for a mortgage later it could take six months or a year, sometimes two years for your credit score to rebound.

After that sort of difficulty, let’s talk about mortgage refinancing if you already own the home and your credit situation is difficult, and you’re looking for a mortgage. More than likely, the lender that you have now is maybe not going to renew the mortgage, or you’re looking to leverage your equity to address some financial concerns getting a mortgage through the big five banks here in Canada when your credit has already gone off the rails can be a bit of a challenge the bar for getting credits in the big banks has always been fairly stringent, and so that’s why most people turn to mortgage brokers in situations like that of the dozen or so lenders that I routinely work with about half of them have mortgage products specifically designed and geared for those with difficult credit situations so with mortgage refinancing just like with purchasing the worse your credit is or, the lower your credit score, the fewer lenders there are that are likely to help and the higher the rates and the fees that might be involved in a mortgage like that there are four key things that I look at as a mortgage agent that helps me determine which of these lenders will be best suited to help my client that’s going to give them the very best rates possible the first is their credit score, and the history with that credit number two is loan-to-value or the mortgage amount versus the value of the house now this is typically done for mortgage refinancing so just for easy numbers if you have a house that’s worth $100,000 and you need a mortgage of $50,000 then the loan to value is 50% in difficult credit situations when it comes to refinancing the lower the loan to value the easier it is to get a mortgage. The third is the nature and amount of the household income.

Buy a House Bad Credit Ontario

Number four is the location and property, so is that a condo or house is it a major center or is it just outside. To a lesser extent would be the net worth when it comes to savings investments and other assets that make up their net worth. Think of these four items as pillars that hold up a roof so if one of the pillars is weakened as long as the other three are nice and stable, then the roof won’t fall in, but if two or more of them have become the crumble, then the roof will fall in so for example if your credit score for whatever reason has fallen well below six hundred to say five fifty and you’re looking for a refinance mortgage of 80 percent of your home’s current value well if even if that house is located in a major Center that mortgage will more than likely not be approved without some strong cosigner so let’s take that same client again that has a credit score of 550 and they’re looking for a mortgage that’s 50% of the houses current value now if that house is located in a remote small town of less than a hundred people once again that mortgage will probably not be approved without a strong cosigner now on the other side of the coin if the house is located in a major center like Toronto, Calgary and Vancouver, that mortgage will almost definitely be approved without a cosigner. When it comes to equity financing, it is location. location, location, I’ve been able to help hundreds of clients over the years and pretty terrible financial situations, and some even keep them from losing their homes. Here are just a few scenarios of the types of things that I’m able to help clients with.

If a client has missed enough mortgage payments that it has triggered a foreclosure, well they could be losing their home; there have been occasions what I’ve been able to find a mortgage lender that will take the risk to be able to help them out and pay out the foreclosure and save them from losing their house help clients avoid bankruptcy due to job loss or illness help those folks that are in a consumer proposal, Pay those out consumer proposals can sometimes go on for years and the sooner that people get those paid out, the sooner that they can move on with their credit helping clients address debts with the Canada Revenue Agency’s when it comes to income tax and other tax debts. Assisting clients with these tricky mortgage scenarios is some of the most rewarding work I do, but let me be clear that these high risk and higher interest rate mortgages are not a long-term solution. These are not meant to be five-year closed terms the client is stuck with most of the time these clients are getting a One-year to a two-year term on this mortgage. Then I help and coach the client to get their credit situation back on track so that after the term is completed with that lender, we move them on to a bank with a much lower interest rate to save them money.

If you have concerns about your credit and want to take charge and fix your credit or have questions about mortgages or difficult credit situations, please feel free to contact me.