Bad credit mortgages

Do you have a poor credit rating because of financial problems you have had in the past?

Perhaps you went through a bad divorce or you owned a small business that went bankrupt or a consumer proposal.

You might have lost your job and ended up defaulting on your loans and credit cards.

There are many circumstances that could have caused you to have poor credit.

This does not necessarily mean that obtaining a mortgage to purchase a home is out of the question and regardless of the circumstances speaking with a mortgage broker could help you with a course of action toward owning a home.

Ensuring that you take the right steps whether you have bad credit or even no credit is very important. There may be some options available to you but they will come with a cost.

Here’s a guide to what we are going to take a look at to determine what options might be available for mortgage financing.

  • Check your credit score — You can do this yourself at either www.equifax.ca or www.transunion.ca or if you contact a mortgage broker, they can check it for free. Your credit score will be somewhere between 300 and 900. If you have a credit score below 600 most of the major bank lenders in Canada will not consider you for mortgage financing and you will be looking at an alternative mortgage lender. If you have gone through a bankruptcy or consumer proposal recently, the options available may include private lenders.
  • Save for a larger down payment — If you have good credit, then you can purchase a home with as little as a five per cent down payment, but with credit issues you need to be prepared to provide more equity. Lenders are going to require somewhere between 20-25 per cent down payment.
  • There will be fees — Be prepared to pay some fees to arrange a mortgage with either an alternative or private lender on top of the standard closing costs.
  • Rates — You will not qualify for the best rates that are currently being advertised, but if you make all of your payments on time and work on repairing your credit, then most likely you will qualify for better rates at renewal time.
  • Income and employment — A lender is going to review your history of employment and income to ensure that you are able to make your payments. Is your income confirmable? (Declared on your tax returns with your taxes paid up-to-date). This is particularly important for the self-employed applicant. Do you have employment stability?
  • Current debts — Carrying high balances on unsecured credit cards or having a high car payment could also affect a mortgage decision. Alternative lenders will want to ensure that you can afford your current obligations to prevent the potential of future default on a mortgage payment.
  • The property you are purchasing — This is a very important factor for private lenders lending to clients with bad credit. They will want to have a full appraisal completed on the property to ensure that it is marketable and worth the investment they are making in the mortgage.

It may be possible to obtain a mortgage even with bad credit but be prepared to pay higher rates and fees and have a larger down payment.

There are options available that can be determined after a full review of the circumstances which might include a co-signor until you have re-established your credit.


Buying a fixer-upper

Are you thinking about buying a diamond in the rough to transform into your dream home?

No doubt it’s easy to be tempted by all of the magical home makeovers that are seen on the home-improvement shows these days.

With home values rising this could be a great way to make home ownership a little more affordable for some by buying in a neighbourhood that is undergoing a transition.

Obviously, you need to avoid buying a money pit.

Working with professionals will ensure that the improvements you are considering will be worth it in the end to improve the value of the home. You don’t want to over-renovate the home for the area so avoid renovations that just won’t be worth it in the end.

But how do you afford to do a renovation? When you purchase the home you will need sufficient funds for the down payment and closing costs.

You take possession of the home and if you don’t have the cash set aside you will then need to secure a home improvement loan or perhaps use a line of credit.

It could be difficult to qualify for additional financing when you have just purchased a home and these options can also be expensive.

The great news is that there is an affordable solution – there are insured mortgage programs that will allow you to borrow up to 10 percent of purchase price for improvements to a maximum of $40,000. The property value must be less than $1 million.

Here are the steps that you need to take:

Step One:

Obtain a mortgage pre-approval to determine your maximum approval amount.

Step Two:

Find a home and have a general idea of what renovations need to be done as well as their cost.

The purchase price plus the renovation cost cannot exceed your maximum approval amount for a mortgage. Lenders will request written quotes to be provided, detailing the work to be done, as well as the cost.

Step Three:

Once your offer is accepted, you will need to provide the accepted purchase offer, as well as the quotes for the improvements, to your mortgage broker.

A financing request will be sent to the lender which includes the cost of the renovations.

Step Four:

Once you take possession of your home, you can begin the renovations. The Lender will instruct the Solicitor to hold the additional Renovation funds, until the lender confirms the works has been completed.

Once the renovations are completed an appraiser will complete an inspection to verify the work is completed as per the quotes.

Mortgage pre-approval first

All the recent mortgage rule changes have made it more difficult to qualify for mortgage financing.

I am receiving calls almost daily, not only from first-time homebuyers but also move-up buyers who are surprised to find out that they may not qualify for the new financing required to make their desired purchase.

The term pre-approval is somewhat misleading as even with a mortgage pre-approval we cannot guarantee that you are 100 per cent approved for your financing. There are many variables that will factor into your final mortgage approval including the lender reviewing the property you are purchasing.

A mortgage pre-approval can give you the confidence to know that you fit within the guidelines of a mortgage lender and also a mortgage insurer, if you require an insured mortgage for your purchase. It will also establish a realistic budget for your new purchase.

Here are the benefits of getting pre-approved.

  • You will know your price range before you start house hunting.
  • Your realtor will know exactly what type of property you should be looking at; that can save you both time and also narrow your home search.
  • Being pre-approved can give you an edge over other buyers as you may be able to close quicker and that might be important to the seller.
  • There aren’t going to be any surprises as you will already know how much you require for a down payment, closing costs and how much your monthly mortgage payments are going to be.
  • Since you are already pre-approved this may put you in a better position to negotiate with the seller.
  • A pre-approval also gives you the benefit of securing your interest rate for up to four months. This is a great benefit especially as interest rates are predicted to increase in the first quarter of this year.

Here’s another tip – you don’t have to wait for an appointment to obtain a mortgage pre-approval. The first request I often receive is for an appointment to meet, and I am always happy to accommodate my clients, but an in-person meeting is not required for a mortgage pre-approval.

Most are happy to find out that we can complete the process via telephone and email. This is generally more convenient for my clients and a great time-saver that can result in the pre-approval being completed in one day most times. It’s a simpler process than most think.

Once you have a pre-approval in hand you can then start your home hunting with confidence.

I must repeat that the new mortgage qualification rules are making it more difficult for all to obtain financing, so it’s better to go through the simple process of a mortgage pre-approval before moving forward with a home purchase.

Before you fall in love with a home you should know if it’s within the reach of your finances. The first person you should call before reaching out to a realtor is a mortgage professional.


1st time home-buying blues

Each year, Mortgage Professionals Canada conducts research that focuses on:

  • trends in the housing and mortgage markets
  • consumer attitudes
  • interpretations of government policies related to mortgages and housing in Canada.

Here’s a recap of the findings as they relate to first-time home buyers and why many potential buyers will have to delay buying, and often by very long periods.

For people who do not own homes, the survey asked what the main reason was for not owning.

  • The main reason related to lack of financial preparedness especially needing time to save for a down payment.

There is still a very high level of interest in home buying by young people. Among non-owners aged 25-34, three-quarters expect to buy a home within the next five years. But whether they will be able to buy may be an entirely different matter.

Here are some reasons why they may not be able to buy.

  • Their personal circumstances (employment situations, incomes, confidence about economic prospects, and access to down payments.)
  • Market conditions – will they be able to find options that meet their reasonable needs and wishes at costs that they can afford.
  • And even if their personal circumstances and market conditions are favourable, can they obtain mortgage financing. At this time, federal government policies (stress test) are making it difficult for potential buyers to obtain mortgage financing.

For potential buyers, who are adversely affected by the mortgage stress tests, what are the solutions?

  • Reducing their expectations – therefore, buying a less expensive property.
  • Making larger down payments.

Analysis indicates that 18 per cent of prospective homebuyers who could currently afford their preferred purchase would fail a stress test for mortgage financing.

As a result many would need to make considerably larger down payments which may result in prolonged delays in buying a home.

Here is some information regarding down-payments funds.

  • The single largest source of fund for down payments (just over one-half of total funds) is personal savings and RRSP funds.
  • The “bank of mom and dad” is growing in importance, but still accounts for less than one-fifth of total down payments.
  • Loans from financial institutions are a large source of funds but revised mortgage lending regulations are now making it more difficult for buyers to borrow down payments.

This set of circumstances means that many potential first-time home buyers will have to delay buying, and often by very long periods.

As a result the homeownership rate has fallen in Canada, in large part due to the increasing difficulty of saving for down payments. The additional challenges posed by the stress tests will add to the downward pressure on the ownership rate.

The mortgage stress tests, by suppressing home ownership, are adding to the financial stresses that are and will be experienced by Canada’s younger generations.

*Information provided by the Report on the Housing and Mortgage Market in Canada – Mortgage Professionals Canada – July 2018

More Mortgage Matters articles

About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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