A bad credit mortgage is any home loan that has been arranged where the borrower has less than perfect credit. Bad credit can mean debts in collections, a past or current bankruptcy, or a consumer proposal, or it can mean that your credit score has taken a hit for any reason at all.
The question we get most often at Turnedaway.ca is – what exactly is a bad credit score?
Your credit score is very important to consider when applying for a mortgage. Credit scores range from 300 to 900. In terms of mortgage financing, any score less than 680 would be considered a bad credit score. While some AAA mortgage lenders will make exceptions for borrowers with scores ranging between 600 and 680, these lenders are few and far between. A credit score of less than 680 usually results in a bad credit mortgage.
What’s the difference between a standard mortgage and a bad credit mortgage?
Two factors set a standard mortgage and a bad credit mortgage apart. The first noticeable difference is the type of lender a borrower can apply to. With a perfect credit score, a borrower can approach any bank with confidence. However, the primary thing a big bank looks for is a credit score above 680. If your score is within the 700 to 900 range you can apply for a standard mortgage with a high expectation that your application will be approved.
Conversely, if your credit score is less than perfect, your mortgage lending options will be limited. A mortgage broker who specializes in alternative mortgage financing can simplify the process for you. Additionally, a mortgage broker can also apply to more than one lender at a time. Above all, working with a broker will improve your chances of getting approved and will help you secure the best interest rate.
The second major factor that sets a standard and a bad credit mortgage apart, is the interest rate they get approved for. Borrowers with perfect credit can typically secure the best interest rates their bank offers. Clients who secure a poor credit mortgage will usually pay a moderately higher interest rate. If you have a higher credit score, it generally means you’re likely to pay less interest. If you have a low score when you make your application your interest will be higher.
It’s about risk management…
Essentially, the premium a client pays with respect to the interest rate is generally determined by the amount of risk they represent to their lender. Most bad credit mortgage lenders set the interest rate in accordance with the level of risk the borrower represents. For example, if you simply have a damaged credit score you may get a better rate than someone who has just completed a bankruptcy. Likewise, if you have bad credit and low income you might not get the same rate that someone with bad credit and high income could be offered.
Can I still get a mortgage if I am currently in bankruptcy, have an active consumer proposal, or have filed for debt help in the past?
We do not make any judgment about your need for debt restructuring. We are not concerned about how you got into debt or why you needed help to get out. The reality is, there are many Canadians suffering from debt who require assistance to get back on track. A recent study indicates that Canadian households are now using 14.9% of their household income for debt repayment. Debt repayment is cutting into your budget and making it harder to build up equity, save for retirement, and generally make ends meet.
Turnedaway.ca believes that every client deserves an opportunity to own a home or leverage the hard-earned equity they’ve built up. As Canada’s premiere bad credit mortgage broker, we have well-established relationships with all of our mortgage lenders. We work with lenders who will provide financing for clients with previous bankruptcies and consumer proposals.
Our lenders will also allow homeowners to pay out existing debt management programs with a bankruptcy trustee or credit counselor. Paying off these programs early can save you the burden of having to wait for your credit to improve. If you own a home with equity, a bad credit home equity loan can help erase the stigma attached to a bankruptcy or consumer proposal. Finishing your debt restructuring program early also offers you the opportunity to put money back into your budget. With our help, you can improve your cash flow and your credit score at the same time.
What types of products do bad credit mortgage lenders offer?
Just because you have a poor credit score does not mean that you don’t have options. You may not be able to approach one of the major banks for approval but you do have options. A mortgage broker specializing in bad credit mortgages can offer a wide array of products. At Turnedaway.ca, our focus is on clients who don’t meet conventional bank standards. We can offer clients with poor credit several different products with flexible terms which include:
- Bad credit second mortgages
- Bad credit home equity loans
- Bad credit home equity lines of credit
- Bad credit purchase options
- Bad credit mortgage refinancing
- Bad credit mortgage debt consolidation
The larger a client’s down payment, the more borrowing options they will have. The same theory applies to home equity. The more equity you have, the better your chances to be approved. With a larger down payment or greater home equity, you can also expect a better interest rate.
How much equity (or down payment) do I require to qualify for a bad credit mortgage?
If you currently own a home you may be able to borrow as much as 80 to 85% of its value. Despite having bad credit, building equity over time demonstrates that you understand the responsibility of home ownership. Winning points with mortgage lenders isn’t always easy, but home equity and/or a large down payment is one of the ways to help offset the impact of a bad credit score.
Clients who are looking to purchase a home may have yet to prove that they can handle the obligations of a home loan. For this reason, most bad credit mortgage lenders scrutinize purchase applications more so than clients who already own a home. As a first-time home buyer, you will face greater challenges finding a lender – but that doesn’t mean it will be impossible.
I can’t prove my income, can I still get a mortgage with bad credit?
The more factors you have working against you, the harder it will be to qualify for a mortgage. Not being able to prove your income is challenging for most borrowers. Today more than ever, there are growing numbers of homeowners who are self-employed. Many self-employed entrepreneurs will work for cash (again we’re not judging) and some don’t claim cash receipts on their income tax returns.
Many self-employed individuals also take advantage of accounting benefits outlined in the income tax act. Namely, to reduce the overall amount they pay in annual income tax. Allowable deductions and other remedies in the tax act that result in a reduced tax bill can make your net income look pretty low on paper. You know that you’re earning more and it just looks like less after your accountant/bookkeeper has completed your return. However, a lender might not take the time to fully understand. Your deductions may save you from paying the tax man but also make it difficult to qualify for a loan with a traditional big bank.
Why use Turnedaway.ca?
The name says it all! We are the number one choice when it comes to bad credit mortgage brokers. Also, we don’t make false promises. We won’t tell you that we can get you a AAA mortgage when you won’t qualify for one. However, we will make every genuine effort to get you the best mortgage you do qualify for. While we search for the best mortgage for you – you can relax and know that someone is searching for your best mortgage solution.
We can help you make your dreams a reality and get your finances and credit back on track. If you’re not ready to buy or unlock your equity right now, check out our free online videos or sign up for our email service. We’ll send you a monthly email for 6 months (you can opt out of it at any time) with video instructions on how you can improve your credit score.
If you have less than perfect credit give us a call at 1-855-668-3074. With decades of experience, we are the number one choice to explore bad credit mortgage options. Turned away – turn to us!