whatever reason, your credit is sub-stellar and the bank is
either denying your applications, or offering ludicrous repayment
worry - all is not lost. Here's what you need to know:
see if any of this sounds kind of familiar to some of you
your younger days when it came to managing credit & money,
you were simply foolish & stupid. You went through a rather
ugly & messy divorce that cratered youre A-1 credit
rating, started a small business that ended in total failure
and financial ruin. Out of the blue lost your job or had to
deal with a catastrophic illness or family emergency. Agreed
to co-sign on a loan for a best friend, ex-girlfriend or family
member who defaulted and left you holding the bag with the
lender. Had to go through a consumer proposal for you debts
or were driven to file for bankruptcy by your circumstances.
line is that you have a less than perfect credit history,
ok lets just say its awful and your want a mortgage
and your banks says no!
a few years back ago if you found yourself in this situation
needing a mortgage, you trotted out to your local neighborhood
bank on the corner to apply for a mortgage. You would
wait for days on end to find out if the loans officer would
approve your application only to hear that you didn't fit
the bank's criteria and got declined. They would say something
like "it's unfortunate about your circumstances, but
there's nothing we can do at this time" And no matter
where you went you always heard the same thing, after a while
there was little to do but give up on the idea of ever owning
for you, these days there are far more lenders out there who
offer options to folks just like you, they specialize in granting
non-conventional mortgage loans. Not only are they willing
to work with clients that have past credit issues like the
ones already mentioned above but also with ones whose
credit may be perfect but the overall deal doesn't fit into
the guidelines of the major banks and insurers like CMHC.
non-conventional mortgage loans help people who...
Need a sub-prime mortgage
Have less than stellar or bad credit
Sometimes have no established credit
Have had a previous bankruptcy
Are currently in a consumer proposal
Or are in credit counseling today
May have recently come to Canada and are landed or
Are self employed and really can't verify their income
by traditional means
Are off shore investors, investing in Canadian real
Are in need of an alternative mortgage lender for their
project as it doesnt meet traditional guidelines
if you fall into the above category in order to get a non-conventional
mortgage loan in Canada you will need to keep the following
property is the most important component of a tough credit
mortgage loan. At the end of the day, the lenders are lending
on the value of the home and therefore will be adamant that
the property is a above average and marketable piece of real
estate. This is their security that their investment is protected
in case of default. The lender needs to be extremely comfortable
that they can recoup their investment should a default occur.
Their acquire this comfort by evaluating an appraisal of the
property that's conducted by an accredited appraiser. If the
property does not meet with their approval, a mortgage loan
will not be given.
property in a major urban center is far easier to finance
versus a farm in a rural location that's because there are
far more buyers for urban properties than rural ones and in
the event of a foreclosure it can be sold in a reasonable
time period thereby protecting the lenders investment. As
far as loan to values non-conventional lenders as a rule don't
generally exceed 80%, there are a few who will go in excess
of this but not many.
a tough credit situation, the down payment or equity is everything.
If the mortgage loan goes into foreclosure, the down payment/equity
is all thats left to provide a cushion for the lender
while they go through the legal proceeding. Therefore most
"B" mortgage lenders will generally require at a
minimum at least 15% of the value of the home. Naturally the
higher the down payment, the more likely it is that you will
qualify for a mortgage. Occasionally, exceptions are made
whereby 10% down payment will be sufficient, as mentioned
with bad credit this is rare and will hinge on the other aspects
of the overall deal, such as income, job stability and to
the extent of damage to the credit. If your credit warrants
you having to deal with a sub-prime or private lender then
you will need at a minimum 20% equity. Unfortunately higher
down payments come with the territory if you have bad credit.
with these non-conventional lenders in order to qualify for
a mortgage you must have enough income to repay the mortgage.
Now these lenders are not nearly as adamant about debt service
ratios as traditional lenders but even they will want to ensure
there is sufficient cash flow to make the monthly mortgage
payments. Conventional lenders will often look at GDSR, which
is the percentage of your gross monthly income that can be
used for housing costs (mortgage payment, utilities and property
taxes). Now conventional lenders generally prefer a GDSR in
the range of 30% to 35%. Simply put if you have gross monthly
income of $4,000, a 33% GDSR implies that your mortgage and
housing costs cannot exceed $1320 per month. Another one is
TDSR (total debt service ratio) this is basically all of your
debts combined including the mortgage, with conventional lenders
this will in the range of 42%-44% depending on the lender.
With non-conventional or "B" lenders they will often
not want to see numbers in the range of 40% for GDSR and 50%
for TDSR. Now with strictly sub-prime or private lenders these
numbers are fairly flexible, with even higher ranges. Self
- employed clients quite often have to rely upon financing
through these programs as many do not simply show enough taxable
income to qualify under conventional guidelines.
a minimum most non-conventional lenders require that you have
some form of a credit rating. Now there are times when they
will lend to those who have no credit rating at all, provided
the balance of the deal makes sense, especially the equity.
Even though the credit score is not as imperative to non-conventional
lenders they do have some minimums, beacons or credit scores
of around 450 to 500. Again there is some latitude with this,
primarily what a lender will look for is to ensure that you're
not in a "nose dive" as they don't want to be the
ones left to pick up the pieces.
mortgage needs to make investment sense for them, as that's
exactly what it is to them, an investment. These lenders also
have differing lending guidelines when compared to each other.
Some will insist that any outstanding bad debts be paid off
before they will lend the money, others will want to direct
the solicitor to pay off debts from the proceeds while others
will not care as long as the down payment/equity is sufficient
to provide them with peace of mind.
as a rule, you will want to make sure that you pay off as
many debts as you can that are reporting on your credit bureau,
as doing so will result in an overall improvement of your
credit score. It's this improved credit score that you will
need in the end to refinance your mortgage with a conventional
lender. Before you begin approaching lenders it's an
excellent idea to pull your own credit bureau so you know
exactly where you stand credit wise. Now a days with modern
technology it's simple and easy, and you can do it online
in minutes and for a nominal amount. Plus when you do it,
it has the added benefit of not impacting your score, which
is what happens when a lender does it. Once you've got the
report in hand, confirm that everything is correct, any errors
or inaccuracies should be dealt with immediately.
if you've declared bankruptcy in the past, you may still qualify
for mortgaging today. Again the higher the down payment the
greater the odds of getting approved, with both conventional
and non-conventional lenders. With insured mortgage, ones
with less than 20% down payment the insurers guidelines (CMHC,
Genworth, AIG) as well as the lenders will apply when it comes
to getting approved.
will look at the circumstances surrounding your bankruptcy
as well as what you've done to re-establish it since. With
non-traditional lenders circumstances and re-establishment
do factor into the deal however they are less of an issue
because they are equity lenders and as such will offset this
risk with a greater equity requirement from you. Getting re-established
after a bankruptcy is not quite as challenging as you may
believe, there are several lenders who will offer both secured
credit cards and secured loans to previously bankrupt clients.
Rates & Fees
most cases where a mortgage is taken out by a client with
credit acceptable to a conventional lender, that lender pays
a small commission to the mortgage broker. But when it comes
to a non-conventional mortgage loan, it's the borrower who
pays the mortgage broker his or her commission for the work
done by the broker in securing financing. This fee is typically
paid on closing out of the proceeds by the lawyer and is usually
a percentage of the overall financing arranged. Fees will
generally be in the range of 1% to 5% of the total financing
amount, now if the mortgage is fairly small the broker may
have a minimum that they charge.
there will also be lender fees charged by the non-conventional
lender as well. The fee amounts are determined by the lender
based on their risk evaluation. A lender may consider reducing
their fee if you agree to take a higher rate, in effect, amortizing
the fee over the life of the mortgage term. Again fees
will be in the range of 1% to 3% and are typically paid on
closing out of the proceeds by the lawyer.
addition you will need to pay for the legal services that
are required to be performed on your behalf by your lawyer,
and in some cases depending on the lender you may also need
to incur their legal expenses as well. Also any appraisal
that is required will also need to be paid for by you. Again
these may be paid out of the proceeds or the lender may require
that you have the funds to cover them directly.
like any other major financial decision make sure you do your
homework and ensure you clearly understand the in's and out's
of what you're signing and agreeing to because you don't want
to chalk this up to being another financial mistake!