Are you a newcomer to Canada or have you recently entered the workforce? Getting credit in these scenarios can be difficult or feel impossible. But your loan future may be brighter than you think!
There are certain ways to improve your chances of getting approved for a “bad” credit mortgage. Read on for some useful tips.
What Is Credit and Why Does It Matter?
Credit is the ability to borrow money and repay the balance at a predetermined time. To qualify for a mortgage, lenders (banks and credit unions) want to loan money to individuals who can repay in full.
Without a good credit rating score, a solid bill payment history, high credit history, or a lack of past credit, you will be marked as having bad credit and may be discounted as someone who can’t get access to a mortgage loan.
What Counts as Bad Credit
While the outcome of getting a mortgage can be unclear for people with good credit, options exist for individuals who have bad credit. One indicator that you have bad credit, when lenders view you as a high-risk borrower, is essentially a credit score of less than 560.
Maintaining a high credit score - 660 to 900 - is more likely to get you an approved mortgage loan. Your credit score is the strongest risk indicator for the lender.
Factors Considered for Your Credit Outlook by Alternative Lenders
B lenders tend to veer away from the 5C’s of Credit, which is what bigger A lenders consider in the approval process, and instead look at:
- Income & cash flow
- Consistent employment
- Home equity
- Reasons for your negative credit (e.g., divorce, illness)
- Exit strategy to get out of the B Lender situation
How to Get a Mortgage with Bad Credit?
Don’t put your dreams of owning a home to bed just yet. Even with unsavoury credit, getting a mortgage with bad credit in Canada is possible.
Mortgage Options for Canadians
Everyone has the potential to change their spending and saving habits and get into the “Good” book of credit. So, let’s discuss how exactly to get a mortgage.
Alternative Mortgage Lenders: Private, Monoline Lenders, B-Lenders, & MICs
While A-lenders are banks with stricter loan policies, alternatives are available for Canadians who have had poor or no credit history, or other events that have landed them in the bad credit zone.
The above institutions look beyond your credit score and focus on other elements, such as employment stability, income, and property value.
A vs. B-Lenders: Credit Unions and Trust Companies
Perhaps you’re self-employed or have a low credit score. A-Lenders may be the best choice for you. While A-Lenders are financial institutions such as The Bank of Montreal (BMO) and Toronto Dominion (TD), these subprime lenders are both financial institutions and Mortgage Investment Corporations (MICs).
While trust companies act like regular A-Lender financial institutions, they tend to be more flexible in their lending habits – worth a try for hopeful homeowners who are looking to borrow money.
The biggest risk to both the lender and the borrower is that interest rates are higher when consumers use B-lenders to borrow money. MCAP (Eclipse) and Equitable Bank are two examples of several B-Lenders available in Canada.
Private Lenders
A private lender has no strict requirements for loan approval, but offers higher interest-rate, non-income-qualified (NIQ) financing for individuals who don’t qualify for A or B lender loan requirements.
Monoline Lenders
Monoline lenders can be A-Lenders, B-Lenders, or a combination of both, and may be publicly traded or privately held mortgage financing corporations. Each institution set its own credit requirements, making them a good option for borrowers with bad credit who have a strategy to improve their credit standings.
Credit Mortgage Risks
Lenient loan agreements come with more risk for both parties (lender and borrower). For consumers, the risks include:
- Higher cost of borrowing:
- Larger down payment, often a minimum of 20% down payment
- Shorter mortgage terms
Bad Credit Doesn’t Mean a Bad Mortgage
Options are available for consumers who are considered high-risk borrowers. At Get a Better Mortgage, we understand the intricacies of complicated credit history, the challenges of a newcomer starting over, or the realities of an entrepreneur with little disposable income.
We find workable financial options and strategies to get you unstuck and ready to take the next financial step with confidence.
Book a call with one of our care coordinators.
