The borrower profile where these two segments of the market are the most competitive is when there is both good cash flow and good equity, but weak, poor, or bad credit.
A bad credit mortgage from either of these sources can see the quoted interest rate being very competitive.
Where they tend to vary is when you get into the terms and conditions of the mortgage, specifically the length of the mortgage and the terms related to early prepayment.
With the sub prime institutional mortgage lenders, the programs offered are typically for three years or longer with very little if any opportunity to prepayment without incurring significant penalties.
If you know its going to be several years until you are going to be able to qualify with an “A” mortgage lender, and you’re unlikely to be doing any form of prepayment during the next two to three years, then a sub prime mortgage offering for multiple years may be a very good fit.
On the flip side, private mortgage lenders only offer one year mortgage terms for the most part, which are typically interest only payments compared to the fully amortized programs that many sub prime lenders provide.
With a bad credit mortgage from a private lender, the monthly debt service or mortgage payment is going to lower if you are comparing interest only to a principal and interest payment combination, and there is likely going to be less restrictive repayment penalties.
But even if the prepayment penalties were similar between the two, at then end of a one year mortgage term, the private mortgage is essentially open for full repayment without penalty.
So if you think you can get your credit back in shape in a year or so, you might want to consider a private mortgage term of one or two years, and negotiate a prepayment penalty that is acceptable to you.
While not all private lenders are the same when it comes to prepayment penalties, there are some that stick with a three month interest penalty on amount prepaid, and others that have no prepayment penalty after a certain number of months have passed in the mortgage term.
The key thing to remember in the short term is that interest rate is likely not going to be the deciding factor as both sub prime lenders and private mortgage lenders can be very competitive for bad credit deals where equity and cash flow are strong.
If you’d like assistance sorting through your bad credit financing options, I suggest that you give me a call so we can go over your situation together and discuss the different alternatives available to you.
The mortgage rates for bad credit type applications are going to be very similar between the sub prime institutional lenders and the private mortgage lenders.
In virtually all financing scenarios, interest rate is related to risk. While there can be instances where this doesn’t hold true, those cases are going to be few and far between…meaning that the next time someone with bad credit says they got some sort of prime plus mortgage rate, its likely an exaggeration of the facts or a made up story.
So what are the rates for a bad credit mortgage?
This will vary by the mortgage position that is offered by security as well as the quality of the real estate and the market where the property resides.
But for the most part for those that have bad credit, the rate on a first mortgage is going to be between 9% and 12% and the mortgage interest rate on a second mortgage is going to be between 11% and 15%.
This takes into account the interest rate written into the mortgage.
For most bad credit mortgages, you’re also going to be paying a lender fee from half of one percent to two percent and mortgage broker fees on top of that if a mortgage broker is being utilized.
Adding in all the potential costs, the net effective rate for a bad credit first mortgage will range from 10% to 16%, and the effective interest rate on a 2nd mortgage is going to then range from 12% to 19%.
While the available mortgage rates can be quite high in certain situations, the monthly payments, at least from private lenders, are primarily interest only.
So even though you end up moving into a higher interest rate bracket, the net cash flow payment every month may be very close to what you had paid previously for a similar amount of financing to a bank or institutional lender at a lower rate due to the fact that principal is not being repaid.
Once again, there can be anomalies in the market where better rates can be secured, but there typically is something in the deal that attracts a better rate.
For instance, you have an outstanding property within the city of Toronto, and only want a loan to value of 50%, the equity in the property and the quality of the security can still provide a bad credit mortgage in 6% to 7% range.
At the same time, the worse your credit is, the harder its going to be to find interested lenders, and those that are interested are going to charge rates at the higher end of the ranges listed above.
Just because someone with equity in a real estate property, but also has bad credit, does not automatically mean that a private mortgage lender or subprime institutional lender will provide then with a bad credit mortgage.
There are varying degrees of bad credit which are taken into account by private mortgage lenders.
More specifically, for most private lenders, your bad credit status for them is all about the back story that explains how you’re credit got into a distressed state in the first place.
For instance, unexpected life events can occur that can impact your credit over a period of time such as divorce, job loss, family health, and so on. Even bankruptcy has a back story that a lender may be interested in hearing.
The key here is that most private lenders don’t mind financing people with bad credit, provided that the bad credit is not in a habitual state of irresponsible credit management.
If you have a low credit score due to a certain set of circumstances, but are now working your way out of the problem and are in the process of improving your credit score or have improved over the last number of months or years, then a bad credit loan is likely going to be readily available to you provided that there is sufficient equity in the property to cover off the requested amount of financing.
On the flip side, if you have had bad credit for a long period of time and your credit profile shows no signs that things are improving, or you’re doing a better job of managing your credit responsibilities, then its likely going to be harder to find a private lender interested in funding your deal.
This is not to say that you can’t get a private mortgage with really bad credit. But what it does say is that there are going to be fewer lenders that will be interested in considering your request, the loan to value amount offered will be lower than average, and the rates higher. And if there are any repayment issues, the private mortgage lender will be more inclined to acquire swiftly to collect the money due and take whatever legal means are available to them to reclaim the amount outstanding.
If you’re in need of a bad credit mortgage, or want to know more about what types of private mortgage options are available to you, I suggest that you give me a call so I can quickly assess your requirements and provide some bad credit mortgage options for your immediate consideration.
Foreclosure property financing of a property you own that is presently in foreclosure with one or more of the existing mortgage holder(s) can be accomplished through a private mortgage lender, but there are some things you need to consider to be successful with this activity.
When a borrower is in a default status on their mortgage and the lender is taking a foreclosure action, an equity mortgage through a private mortgage lender is definitely a potential option, provided that there is sufficient equity in the property to support a new private mortgage financing decision in the borrower’s favor.
Its unlikely that a bank or institutional lender will be interested as they typically have tighter cash flow and credit requirements than a private lender which is why an equity mortgage is the most likely option.
For instance, if the current market value of the property is $400,000 and a private lender is comfortable issuing a mortgage commitment for 60% of that value, or $240,000, then the question is can this amount of money, and your available cash allow you to retain the property through a mortgage financing action?
First, and most straight forward, you payout the existing mortgage holder or holders with the funds provided by a private mortgage holder plus cash if more funds are required than what a private mortgage lender will provide.
Under this scenario, the mortgage lender is paid out, and the foreclosure action is stopped. You would then have a private mortgage in place with a term of one to two years at the most, providing you time to either improve your financial position so that you could qualify for a lower cost, longer term bank or institutional mortgage before the end of the private mortgage term, or take the time required to sell the property for maximum market value in order to preserve your equity.
Second, you could get the private mortgage lender to buy the existing mortgage that has put the property in foreclosure either for the face amount owing or a discounted price. Private lenders are more interested in this type of scenario if they can purchase the mortgage at a discount which increases their return on investment during the time remaining on the mortgage.
In both of these cases, the lending decision is based on the equity in the property, likely established by a third party appraiser.
When a borrower in foreclosure is looking to purchase the property out of foreclosure for a bid lower than market price, the financing equation can change quite a bit.
For instance, if you were successful in buying the property out of foreclosure for a winning bid of $300,000, instead of the fair market value estimate of $400,000, you have essentially been able to acquire the property at a below market price.
But, from a financing point of view, virtually all lenders will look at any sale, regardless of the circumstances, as the current value of the property. The logic holds that if the property was truly worth more, someone else would have been willing to pay more than what you did to get the property back from the lender.
So at a purchase price of $300,000, the lender’s 60% loan to value criteria now puts the maximum mortgage at $180,000 which may or may not work for you.
The key here is to make sure that you have equity to finance, otherwise you may not have sufficient leverage available to stop the foreclosure process.
Residential mortgages or home mortgages for post bankrupt applicants can be challenging, but not impossible to obtain.
In fact, depending on where you’re now at after bankruptcy, you may even be able to qualify for a home mortgage loan through a major bank for a real estate purchase. The trick is satisfying all the criteria they will have for someone that has had a bankruptcy in the past. Secondary banks and trust companies also consider these applications, all with their own requirements for getting an approval granted. In the event that you cannot qualify for an institutional mortgage of any type, there still remains private mortgages as an option until you are able to satisfy all the credit requirements associated with cheaper forms of money.
To give you a better idea of what it would take to get a home mortgage or bad credit mortgage from a bank after bankruptcy, here is a list of fairly standard requirements common to most front line mortgage lines.
Each lender will have different variations around these requirements, but the bottom line is that if an applicant has worked hard to re-establish earnings and credit after bankruptcy, there is a good chance that an institutional mortgage can still be secured at market rates and terms. One point to mention is that listed rules or requirements are for home purchases, not mortgage refinancing, with is another kettle of fish all together.
If you don’t quite meet these criteria today, within 6 months to a year you may, provided that you focus in on these basic requirements.
Toronto bad credit mortgage options can range programs offered by “B” institutional lenders to private mortgage lenders.
The key in most cases is going to be how bad you credit is as almost all mortgage programs will have some parameters in their mortgage assessment criteria with respect to credit score and credit profile information.
The starting point for bad credit mortgages is typically when your personal credit score falls below 650. This is the fico score that is provided by the major credit reporting agencies that provides credit reporting services on and for Canadian residents.
Once you get below the 650 score level, you will likely be eliminated from most “A” mortgage programs. The next level down of institutional mortgage financing can still provide very good rates, but they will be slightly higher if your credit profile was stronger. While the score is something that everyone tends to get fixated on, the rest of your credit profile and transactional history are also going to be important and taken into consideration when a mortgage lender is assessing your application. For example, you could still be declined by an “A” lender when you have a credit score above 650 if you have negatives on your credit history that may concern them.
As your credit score drops, you are continuously limited from the available institutional mortgage programs. There is no exact jumping off point from where institutional programs stop and and private mortgage financing starts, but a generate rule would be at the level where your personal credit score goes below 600.
While private lenders will consider bad credit profiles where the credit score is low and the are a number of recent negatives on the credit profile, privates may also review your profile to get a better sense of your commitment to honor your repayment obligations. As a result, there are also differences in rate availability on the private mortgage side of things as well where very bad credit may pay a higher private mortgage rate than a less severe credit profile.
If you have bad credit and want to better understand your Toronto bad credit mortgage options, I suggest that you give me a call at 416 464 4113 so I can quickly assess your situation and provide you with bad credit mortgage options for your consideration.
When you are able to secure a new mortgage even though you have bad credit and are able to consolidate some or all of your outstanding short term credit (credit cards, lines of credit, demand loans) in the process, you will likely see a positive jump in your credit score.
While there are a whole bunch of things that impact your credit score, the three most common items are 1) late payments, 2) frequent inquiries, and 3) high utilization of existing credit.
Late payments and inquiries will stay on your credit report for years. But by paying down your unsecured or on demand credit facilities, the change on your credit score is quite fast, increasing your credit score in the process.
How fast? Typically a pay down of short term credit, without impacting the total amount available, can see a positive change to your credit score in 30 to 60 days.
The amount of the change to the score will vary considerably from one person to the next and will be related to the amount of the pay down in terms of total dollars and per cent of available credit.
While every situation is unique, its not unheard of for these pay downs to net the creditor a credit score gain of 50 points or more. This can push you from the ranks of bad credit to good credit, depending on your starting point.
Once this credit score gain has been realized, keeping it there is up to you and your ongoing credit practices. This may also allow you to apply for additional credit or lower cost credit.
One major benefit would be if you used a short term private mortgage to consolidate your debt. This mortgage will likely need to be repaid in one years time, so if the consolidation process gets your credit high enough to be considered by a bank or institutional lender, you have effectively used the private mortgage to put yourself in a position to qualify for a longer term, cheaper mortgage financing solution.
If you’re in need of a bad credit mortgage for real estate purchase, mortgage refinancing, or debt consolidation, give me a call so I can quickly assess your situation and provide bad credit mortgage financing options for your consideration.
First of all, what is bad credit? There are varying degrees of bad or poor credit, each with different financing applications.
Bad credit in general refers to a low credit score and a poor credit repayment record. But each person’s credit profile will tell a different story which can result in different potential mortgage options.
For many institutional lenders, if you don’t have a credit score of 650 or higher, you will not be eligible for their best rates and in some cases they won’t consider you at all.
With credit scores below 650, there are still bank or institutional mortgage sources that can provide reasonable rates, depending on the reason for the poor credit. For instance, it you were away for an extended period of time and accidentally neglected to pay an outstanding credit card balance for a few months, your credit score is going to get hammered, but the severity of the credit issue is very low which will be taken into consideration by certain lenders.
If you credit is below 500 and you have a history of continually missing payments on a number of loans and credit cards, then any type of mortgage financing is going to be difficult to secure because no one wants to constantly be chasing a borrower for late payments.
You can also have a credit score below 500 for events that have happened in the past, but you can also show one or two years of constantly improving credit by you incorporating better credit management practices.
The point here is that bad credit mortgages in Toronto are going to need to be considered on a cash by cash basis, with different options potentially available for different credit profiles.
The best way to determine what bad credit mortgage options are available to you is to work with an experienced mortgage broker that has a focus on bad credit mortgage financing applications.
The mortgage broker will be able to review your credit with you and quickly assess the mortgage lenders that are going to actually be able to help you or will be interested in your deal.
This is going to avoid wasting time with mortgage providers that are likely not going to be able to provide a Toronto bad credit mortgage.
If you require a Toronto bad credit mortgage, give me a call so I can assess your situation and discuss relevant options with you.
Many times an individuals credit will fall off based on a certain events such as job loss and sickness which can result in the accumulation of debt and negative impacts to credit profiles.
The individual may have been able to secure their existing mortgage at excellent rates, but are now facing higher rate refinancing options due to the fall off in credit rating and perhaps reductions in cash flow.
If you situation is similar to the above, then bad credit mortgage refinancing may be the most likely option for getting your cash flow under control and saving a further slide against your credit.
While a new first mortgage will likely be at a higher rate of interest, it is still likely to be substantially lower than credit card interest rates if that is the type of debt you’re trying to consolidate.
Even a private mortgage with interest rates in the 9% to 14% range can still provide for beneficial refinancing, provided that you have an exit plan for the refinanced debt at the end of the private mortgage interest term which is typically one year in length.
At the very least, bad credit mortgage refinancing is going to buy you time to figure out how you plan to deal with your debt load in the longer term. Not only can this stop collection actions from taking place, but it also can reduce the level of stress that is associated with a high debt load and money strapped cash flow.
And once the credit cards get paid down or off, your credit score can start to improve, increasing the chances of getting better financing options in the near future and avoiding complete credit destruction brought on by a lengthy period of loan arrears and potentially personal bankruptcy.
Also keep in mind that bad credit financing options should never be considered as long term solutions due to the higher cost of financing your going to pay. But for relatively short periods of time, they can be the best solution available to you.
If you have bad credit and would like to discuss refinancing options through a bad credit mortgage product, please give me a call so we can go through your situation together.
When looking for mortgage programs that consider bad or poor credit, the first thing to focus on is what currently shows on your actual credit score and credit profile. There are varying degrees of weak credit, and understanding your own credit profile in more detail can help locate suitable lenders.
For instance, a credit score that is below 650 may be considered to be bad credit by many lenders, but there are still institutionally based mortgage providers that will consider credit scores between zero and 650. The key is to focus on the lenders that are the most relevant to your credit profile and ignore the ones that will not be able to supply any bad credit mortgage options.
There are basically two ways for you to better understand your credit. First, you can contact either of the two credit bureaus that provide Canadian credit reports (Equifax and Trans Union) and get them to send you a copy of your credit report. You have the right to receive a copy of your credit report for free from these agencies. However, the free report does not include your score, which is typically an essential credit scoring element of most mortgage lenders.
To get a copy of your credit score, you need to go to either Equifax or Trans Unions website and purchase a credit report package that includes your credit score. At the time of writing, the approximate cost was $24.00. Not only does this allow you to see basically what a lender will see when you make an application, but because you made the request, the credit inquiry does not have any negative impact on your credit score (excessive credit inquiries requested by lending institutions on your behalf are considered by the credit reporting agencies to be negatives against your credit profile and can actually reduce your credit score).
The second method to better understanding your credit is to apply for financing through an experienced mortgage broker. Once you provide written permission, the mortgage broker can access your credit report and provide you with the most relevant options that relate to your credit profile. At this point, any application you may make will only be to a relevant lender who’s criteria match up with your credit history and score.
For the average person with bad credit, the process of finding relevant lenders can be daunting. This is where a mortgage broker can provide excellent value to your search process.
If you’re trying to figure out your bad credit mortgage loan options, then I recommend that you give me a call and we can go through your situation together can see what options are available to you.
The first aspect of bad credit is a low credit score and by a low score I’m referring to a FICO score issued by one of the two major credit reporting bureaus in Canada (Equifax or Trans Union) that is below 650. This is a typical cut off point for an institutional lender, but there are still variations among this group.
The credit bureaus receive monthly reporting information from participating lenders with respect to their borrower payment performance over the last month. Most of the information is for loans, lines of credit, and credit cards that are unsecured.
The information collected by the credit bureaus, along with an individuals personal profile, are used to calculate a credit score which ranges from 300 to 900. The information provided is displayed and calculated as is, so if there are any errors or omissions in the information, the credit bureau still reports the information as provided.
When you have a score below 650, you will automatically not be eligible for certain mortgage programs offering the lowest market rates. As your credit score drops even further, there will be more programs that you will either not qualify for, or will charge higher rates of interest as a result of what they view to be a bad credit or higher risk profile.
There are times that a low score is caused by an error or omission in the credit reporting and if you can verify information is recorded in error, you may be able to still take advantage of certain mortgage programs and rates that would otherwise be unavailable due strictly to the credit score.
Bad credit can further relate to the near term activity in your credit report. For instance, if you had credit problems in the past, but have worked hard to rebuild your credit and are just short of the required level of credit of a given lender, there may be opportunities to still secure excellent lending rates and terms.
However, if your credit score is low, and your near term credit performance shows some combination of late payments and delinquent accounts, then your bad credit is going to force you into higher risk mortgage lenders which can include private money lending sources that are less concerned with your credit profile and more concerned with the quality and value of the real estate security.
That being said, even private lenders can steer away from bad credit mortgage scenarios where the borrower is always late or in default as this can indicate future payment problems that they would prefer to avoid.
If you think you have bad credit, I recommend that you give me a call so that I can quickly provide you with your options for bad credit mortgage financing.