What You Can Do if Your Credit Takes a Beating
Sometimes bad things happen to good people. Credit problems can be caused by many events.
I have had clients who have had a sudden job loss or a serious illness with a child. When these things happen, it's hard to focus on paying your bills on time.
Just because you had some trouble with credit at a certain time doesn't mean you won't ever be able to get a mortgage. If you have had a bankruptcy or a consumer proposal, you will have to wait two to three years from the date of discharge or in the case of a consumer proposal the payoff date, before you can apply for a high ratio mortgage.
What if you have a mortgage already? Sometime homeowners get behind on their bills because of an unexpected loss of income or life event and they start to accumulate balances on their credit cards and lines of credits.
It is really important to keep the minimum payments up to date so your credit does not suffer. If possible look at refinancing your first mortgage to repay the debt. Sometimes the credit is so far behind that a private second mortgage is required to payout all of the debt.
Fortunately, with the increases in values of homes this is sometimes not too hard to accomplish.
What if you want to buy a home and have bad credit? The best option is to pay out the debt and start to re-build again. If you have an existing home, you may consider selling, paying out all or most of your debt but leaving enough to have a healthy downpayment of at least 35 per cent if the credit is already bruised.
Sometimes, I have started my clients in a private mortgage with 25-35 per cent equity because the credit was so far beyond repair. After repairing credit for a year and the payment of the private mortgage the homebuyers are ready to move to a B type lender with a little bit better interest rate and a small or no fee mortgage.
Most credit will take two to three years to rebuild and at that time the clients' mortgage can be transferred to a regular financial institution.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.