October 14, 2009
There is bad credit and then there is baaaaad credit
Yes I am a mortgage broker, and yes I claim to be able to obtain mortgages for individuals with bad credit. Having said that, I must clarify what constitutes bad credit and what you as an individual must do to help yourself. First of all let us begin with the do’s and don’ts of procuring a mortgage.
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)
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.