In Canada your credit score is a number between 300 and 900 and assigned to you by Canada’s two major bureaus, Equifax and Trans union. This score is used by lenders to verify how you have dealt with debt and credit in the past. You can have this score verified on your own or you can go through a financial institution or better yet your mortgage broker. If you have had no issues and have been consistent with controlling your debt your score should be 680 or higher. If you have had a few issues your score maybe lower. If it is between 600 and 680, you should still be able to get a mortgage from a Financial institution (a bank) or an A Lender. If the score is lower than 600, your chances of securing a mortgage from a financial institution or an A lender are not good.
So if you’ve had some financial setbacks like a messy divorce, small business failure or loss of employment and the result is that your credit rating has been negatively impacted, it doesn’t necessarily mean that it will keep you from securing financing for a new home purchase. There are still options available to you -even if they are more expensive.
While it might be difficult to get mortgage approved with poor or a bruised credit rating, it isn’t impossible. In fact it is becoming more and more common as the Canadian mortgage industry becomes more competitive and is in the midst of absorbing many of the changes that the Federal and Provincial governments are implementing.
The first step in benefiting from these new policy regulations and overcoming a bad credit score is to consult with a Mortgage broker. They have access to many types of Lenders who are willing to negotiate with clients with poor or bruised credit – providing they meet their underwriting guidelines. These guidelines vary from company to company. A Mortgage broker can guide you during the initial stages of the decision making proces and point and refer you to the right Lenders. These mortgages these types of B Lenders can offer you may come with a variety of conditions and require an extra effort on the part of the borrower. Here are a few of the requirements that may be asked for by the lenders.
1. Higher down Payment
They may ask you for a higher down payment. With perfect credit it is possible to get a mortgage with as low as 5% down payment. If your credit is poor most mortgage lenders will require higher amounts of 20% or higher. The higher the down payment the more likely it is that you will qualify. The benefit of a higher down payment is that your monthly payment will be lower. The downside is that not everyone has more money to put as a down payment.
2. Proof of Income
In order to qualify for any mortgage you must be able to prove that you have enough money or income to repay the loan. In order to figure this out, Lenders will want to review your gross debt service ratio. (GDS). This is the percentage of your gross monthly income that is used for housing costs such as your mortgage payment, interest, property taxes, utilities, and sometimes Condo fees. This number should be 35% or less.
Before a Lender will approve you for a mortgage they will require proof from a licenced appraiser that the property you are purchasing is worth more than the mortgage you are requesting. These appraisals are standard throughout the industry and most times paid for by the client.
If you have poor or bruised credit and funding is becoming a challenge, it may be in your best interest to have a co-signer such as a family member who is willing and has good credit to sign with you on the application.
Even with a good down payment and income, mortgage lenders often will require a co-signer to guarantee the mortgage. A co-signer gives the Lender added protection. Remember, a co-signer will also be responsible for the mortgage – so your commitment to pay should be a priority. The co-signer will also be on title (which means they also own the property).
Keep in mind that bruised credit or poor credit should be a short term problem. Working with a Mortgage Broker diligently will yield positive results. It just takes a little time and some added effort.
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