Mortgages are available for people with bad credit, its most likely not with your conventional bank. The big banks are limited by the guidelines given them by the Office of the Superintendent of Financial Institutions or OSFI, they are also governed by their shareholders who don’t like to see bad credit as part of a mortgage portfolio.
If you have bad credit and you are looking for a mortgage then there are several options.
First you can expect to pay a higher rate than you would if you had good or regular credit.
Second you can expect that you will require more down payment than if you were under CMHC rules.
Third you can expect that your income may not be as scrutinized as it would be if the banks or CMHC were reviewing the file, it’s not that you won’t have to show that you have income to get a bad credit mortgage its more that they will be more accepting of income that is in your business or income that isn’t usually show to revenue Canada.
Appraisal of Mortgage Property
Getting a mortgage with bad credit you will always need an appraisal of the property to determine current value. The lender will then review the application to determine what the actual percentage of value you will be able to finance. In most cases the private lenders will only consider using 75% of the value of the property meaning you will need a 25% down payment. In some occasions where the borrower has provable income then you may qualify to borrow up to 85% of the value. In some cases the lender will only be willing to offer you 65% of the value and at that time we would look for a second mortgage on the property.
Hiring Mortgage Professional
Getting a bad credit mortgage while not always easy has to be handled by a trained mortgage professional, not all mortgage brokers would know how to go about placing a private or bad credit mortgage. There are many lenders whose rates are higher than you might need to pay and you will also need to pay fees for a mortgage when you have bad credit.
Bad Credit Mortgage Brokerage
Fees for bad credit mortgages are an industry standard, most but not all private lenders have a lending fee that range from 1 to 5% depending on the lender. Each bad credit mortgage will also have a brokerage fee, meaning that I as a broker would also be charging either a flat fee or a fee based on a percentage of the mortgage amount, these fees can other be paid directly or can be deducted from the mortgage proceeds.
The extra costs of getting a mortgage when you have bad credit are appraisal, lender fee and brokers fee’s so plan to have a little more than your down payment should you plan to get a mortgage with bad credit.