Did the BANK say NO to you for Mortgage due to Bad Credit or Income Issues?
There are lots of reasons your bank can say no to you for a mortgage. It could be bad credit, foreclosure, consumer proposal or bankruptcy. Maybe you are self-employed, encountered misfortune, haven’t built up your credit history or you recently moved to Canada. If you declared bankruptcy recently or are in foreclosure or your credit score is below 500, you should look into information about private mortgages. But if your credit is over 500 and can verify your income, then you may qualify for bad credit mortgage with alternative financing lenders also called B lenders. Fortunately there are lots of lenders who will approve you for the mortgage at slightly higher interest rate than the traditional lenders if you have bad credit.
Things to consider while getting an approval for bad credit mortgage:
- Check your credit report to make sure that the information on your credit is accurate. If there are any discrepancies, submit the correction and proof. It may boost your score. Have an explanation ready for an interested lender about what caused the bad credit. Reasonable explanation includes unexpected unemployment, life changing events like major illness, divorce etc.
- Be prepared to pay slightly higher interest rates. Bad credit mortgage lenders charge higher interest rates due to extra inherited risk and will be not as competitive as traditional lenders. But you won’t be paying higher rates for ever either. Once you built your credit, you can move to traditional lender.
- You will need proof of steady income to get approval for bad credit mortgage; lenders want to see that you have steady income. If you are self-employed you may be able to use your stated income. The lenders want to know that you will be able to afford the mortgage payments on a consistent basis.
Why obtain a new bad credit mortgage?
- You may have too many payments and not be able to pay them on time; it might be affecting your credit score. Obtaining a new bad credit mortgage will not only lower your payments but also help you improve your credit.
- Personal reasons such as buying a business, pay off divorce settlements, purchase a new vehicle, invest in RRSPs or plan a dream vocation.
- Carry out home improvements to increase the value of property.
Bad credit mortgage Approval Process
Before a lender will approve you for the bad credit mortgage or refinance, they want to review your full application to make sure that they are not at financial risk. The qualification process may vary from lender to lender. Following are the few things they consider as the approval process.
- Higher minimum down payment
With the bad credit mortgage you will need a higher down payment. Normally you can qualify for mortgage with down payment as low as 5%. But if you have credit issues you will need 20% down payment. You may be asked for a higher down payment if the property is located outside of major cities, reason being if you default on payments it is hard for lenders to recover their money on property out of major cities.
- Proof of sufficient income
Lenders want to make sure that you have stable income and will be able to make payments on a consistent basis. Bad credit mortgage lenders follow certain guideline to determine if you will be able to make the payments. The review process includes satisfying the gross debt service ratio (GDS) and total debt service ratio (TDS). GDS is the percentage of your gross annual income needed to cover expenses related to owning a house. These expenses include mortgage payments, property taxes, water and electricity bills. You can qualify up to 45% of GDS while major banks go only up to 32%. TDS is percentage of gross annual income needed to cover all expense related to owning the house and all other debt and obligations. It includes the auto loan payments, credit cards, spousal and/or child support etc. These lenders can approve the mortgage with TDS as high as 50%.
- Property Appraisal
Bad credit mortgage lenders want to make sure that the property is worth more than the amount they are lending. If you are buying a house or looking to refinancing, lenders are more than likely going to ask you for professional appraisal of the property. It also makes them feel that their investment is safe and if things go south, they can recover their money.What is the cost involved in getting a bad credit mortgage approval?If you have good credit, you do not have to pay any fees to the mortgage broker for mortgage approval as they are paid by the lender. If you have bad credit, in most cases the mortgage broker will still be paid by the lender but most likely you will be charged 1% lender fee by the lender but this depends on case by case basis.
How long does it take to get approval for a bad credit mortgage?
Mortgage approval with the lender takes about 2-3 days and another 2 to 3 weeks for the funds to be released and the paperwork to be completed by the lawyers.As mortgage professionals, we have access to lot of lenders who provide financing to the people who experience credit or income challenges that cannot be addressed by major financial institutes. We explain to the potential lender what caused the bad credit and how are we planning to get their credit back on track. Feel Free to contact us for free no obligation meeting or phone.