Do’s
1) If your credit is bad, go see a mortgage broker because he can best advise you what route if any to take. (If you go visit a few banks they will each check your credit and your beacon score will take a hit each time. A broker deals with many institutions and will only check your credit once.)

2) Make sure that you have some kind of credit card and bank account set up because a lack of credit can be equivalent to bad credit. (Banks want to know that you have made an effort to rehabilitate your credit and that you no longer default on your payments)

Don’ts
1) Don’t approach a mortgage broker and say I just went bankrupt a few months ago and I want to buy a house with 0 down payment. (we may be good but not that good)

2) Don’t come to your broker and ask for an A mortgage when you have no recent history (the past 2 years to be specific) of credit cards, loans, or bank accounts. I sympathize that credit cards were your undoing and that you have tried to stay clear of them so as to help your credit, but by doing this you have in fact hurt your credit. Rehabilitation of credit is key.

3) Don’t expect that a private lender will give you a loan based on a 5% down payment and don’t be shocked that the interest rates are in the mid to high teens even though the Bank of Canada prime lending rate is 2.25%. Private lenders are not a charitable society, they are a business with the goal of making money.

4) Don’t owe money all over the place and expect a bank to say sure we’ll give you a loan as well.

5) Don’t quit your job a week before you apply for a mortgage. (Banks tend to frown on people having no visible means of actually being capable of paying back a loan.)

6) Don’t ask a mortgage broker to help you refinance your home when there is hardly any equity left in the property, your beacon score is at 500, and your salary barely covered your mortgage payments before. (My advice to you is sell, sell, sell, before you lose the house altogether. Sentimental attachment won’t help you save your house.)

7) Don’t ask your broker to get the maximum loan available for your income. (Interest rates are extremely low right now and chances are that in 5 years time if rates increase at a greater rate than your salary, you will not be able to afford the same size mortgage you can afford today.)

The bottom line is that you can have bad credit and within a certain set of guidelines still be able to procure a mortgage, either from a B lender or a private lender but even these two sources, have limits as to whom they will lend money to.
A beacon score in the high 500 range is a bad credit rating. A score in the low 500 range is a baaaaaad credit rating. Private lenders are not as interested in your credit score as they are the value of your property versus the size of the loan. They after all want to feel secure that if you default on your payments they can easily recoup their money.

Remember that bad credit is not permanent, but it is up to you to take the first steps to recovery and a new home can be in your future. Speak to a mortgage broker to confirm that you are indeed on the right track.

Flash forward several years and you are ready to embark on your life’s journey perhaps with a wife or husband by your side. You have learned your lessons well, 1) that you never spend what you don’t have, 2) you pay back everything on time, and 3) stay away from credit cards. Now you are well on your way to rehabilitating your tarnished credit. Wrong! Numbers 1 and 2 are certainly cardinal rules to follow but number 3 although it seems like sound advice is not practical in our cashless society.

You can liken your bad credit to a hangover, and the best way to ease your ills, is by taking “a hair of the dog that bit you”. You have to rehabilitate your credit by re-establishing your ability to repay debt. Credit cards are the hair of the dog that bit you. They were your downfall and they are what will build your credit back up.

Getting a new credit card is not that easy for you to do this time around, because as you can imagine the credit card companies are in business to make money, and so are more inclined to do what is best for them. Your tarnished record does not make you a likely candidate for another go round with any credit company. There are however two ways to get a card. 1) You can get a secured credit card by depositing $1000.00 with the credit card company so that now you have a credit limit of $1000.00 and it shows up on your credit rating as a regular card as opposed to a pre paid card. 2) There is also the chance that you may get someone to be a guarantor for you so that if you default on your payments, the credit card company knows that they will still get their money.

The trick is that once you have a card with the help of a guarantor, your primary duty is to start making small purchases utilizing this wonderful piece of plastic, with the sole intention of paying it back on the due date in its entirety. You will find that after a while the credit card companies will be willing to give you a chance to fly solo.

Another step to take is to open a bank account, and by using the same method try to establish a line of credit. The prime directive as in the previous exercise is to pay back everything on the due dates, and never spend what you don’t have, because otherwise you will end up falling into the same downward spiral that got you into this mess the first time around.

These actions are the road one must take to improve their beacon score, which is the credit benchmark used by banks when determining whether or not, to grant you a mortgage. Some banks will even reward you with a lower interest rate if your beacon score surpasses their criteria for excellence.

Good luck in you efforts, and perhaps one day soon, you will be the proud proprietor of your own dream home.

The main goal now is to find a house that fits your family as well as your budget. The first thing you are going to do is run to your mortgage broker to get a prequalification for a mortgage. This move you hope will achieve two objectives.

1) You will lock in a mortgage rate to protect yourself against any upward trend in the market, and

2) You will establish how much the bank is willing to lend you based on the financial information that you provide.

The banks have certain guidelines and calculations that enable them to determine your net worth, your monthly expenses, and your ability to repay them, because after all, that is the name of the game.

The banks guidelines require you to give them your everyday costs of living, which include credit card payments, bank loans, car payments, and hydro bills. This would normally give them a good idea as to what you can afford and the credit check which they perform on every client will indicate whether you have ever been delinquent on debt repayments, and if you have in fact informed them of all your debts.

There are of course debts which do not show up on any credit check, such as personal family loans, or even private school tuition. You can certainly avoid mentioning these responsibilities to the bank, and they of course being none the wiser, will approve you for a much higher loan. Great, they have agreed to loan you more money and that of course will translate itself into your buying a much larger home. Now it’s time for you to sit back, and truthfully take stock of your repayment capabilities. You have 3 children in private school which carries tuition fees, perhaps upwards of $24000.00 annually.  Your children’s education is adding an additional $2000.00 monthly to your debt load.

Now, who have you fooled?

The bank has lent you more money than you can afford. Your finances are suddenly choked and there is no help on the horizon. You are in dire straits, which might lead to your defaulting on your loan. Should the bank have to foreclose due to non payment, they end up repossessing your home, and you are literally out on the street. Think about it, who have you fooled?  

Be honest with yourself and enjoy the life of being a homeowner.