First of all, remember that there are really three primary things that any mortgage lender is interested in when providing home financing. In no particular order, these are cash flow, credit, and collateral, or the three “C’s”.
If you have weak, poor, or even bad credit, the mortgage application is going to have to focus more heavily on the other two.
And if you have good cash flow and don’t require more than 80% of the value of the real estate being offered as security, you’re always going to have some different financing options to consider.
For instance, with cash flow, there are both institutional and private mortgage financing options that are going to be higher than “A” credit rates of of course, but the stronger cash flow and collateral are, the closer these “B” lending rates are going to be to the better rates out in the market place.
As cash flow and collateral also deteriorate, so will your options for financing, with the rates and fees going up as well as there will be less lender supply for these types of deals.
Many times a bad credit mortgage is a short term requirement of a borrower to provide them with the time necessary to get their credit back into line so they can qualify for a lower cost mortgage over the longer term.
In terms of your credit, just because its bad doesn’t mean it doesn’t come into the equation.
Lenders are interested in why its bad, how it got that way, and the composition of reported events that have lead to your current credit status.
For instance, someone could be on the other side of a divorce where cash flow got messy and are now in the process of rebuilding credit and have shown marked improvement over the last 6 months as an example.
In this case, credit is moving in the right direction which can assist with the financing process.
So knowing your credit profile as it is reported and being able to explain why it is the way it is can also be helpful to lender in that you can show you do understand how your credit has been damaged and you can hopefully describe your plan for improvement.
While this in depth credit profile knowledge is not necessarily required to get a bad credit mortgage, it can help you get a better bad credit mortgage which saves you money over time.
So when applying for a mortgage with bad credit, the more you can demonstrate how you plan to secure the lender from risk and repay the mortgage on time, the more options you’re going to have.
When all elements of the credit assessment are weak, you can still potentially get a bad credit mortgage, but at a much higher cost with a very little tolerance for any late payments.
An asset based loan can involve most any type of asset that provides security to a lender so that in the event of loan default, the lender has a means of getting their money back.
The most common form of asset based bad credit loan is a private mortgage from a private lender where the asset being pledged as security is the equity in a residential property.
Most any other forms of financing are going to be based partially or completely on the strength of your personal credit profile and credit score. So if you have the ability to secure a home equity loan through a private lender, this is likely going to be your best and lowest cost option.
A bad credit mortgage is really no different than any other type of mortgage, other than its provided by a private lender or private lending groups instead of from a bank or institutional lender.
In most situations where a private mortgage is acquired due to bad credit, there already is a residential home mortgage in place in a first position and the private mortgage becomes second mortgage financing.
When we speak of bad credit, we are basically saying that your credit is at such a level that there are no bank or institutional options available whatsoever, which is why a bad credit loan secured by real estate is very common.
A private mortgage lender who is prepared to consider an application for a Toronto bad credit loan will be primarily focused on the value of the real estate and have a secondary focus on the income or potential income the applicant can generate to make monthly interest payments on the mortgage.
Most bad credit mortgages provide an interest term of one year and if the mortgage is to be extended further, there is likely going to be a renewal fee required.
So in effect, a bad credit mortgage is short term bridge loan that basically buys you time to get your credit situation in order and/or provide time for funds to be acquired from other sources to pay down the outstanding debt.
The process to locate and secure a Toronto bad credit loan secured by real estate is to work with an experienced mortgage broker that has access to private mortgage lenders in your area.
Perhaps we need to start with the basics.
While credit is an important criteria with respect to getting approved for a residential mortgage, so too are the applicant’s equity contribution and repayment ability.
With respect to a what we are referring to as a “bad credit mortgage“, we are assuming that property equity and repayment are not issues and the reason an application is pushed into the bad credit mortgage category is due to credit issues alone.
A good credit rating will allow you to be considered for lower cost residential mortgage programs. What exactly is good credit is going to vary from lender to lender, but as a general guideline, if you have a credit score of 675 or higher, you’re likely going to be considered to have good credit.
If an applicant’s credit score drops to lower levels, they can fall into more of a fair to poor credit range where a secondary bank or institutional lender may still be interested in providing mortgage financing, but at slightly higher rates. Fair to poor credit, for the purposes of this discussion, would fall in a credit score range of 600 to 675. Just remember that once you fall into the lower end of this range, you still may not be able to secure a residential mortgage from any type of conventional or institutional lender due strictly to credit as the make up of your credit profile can also play into your ability to qualify for a mortgage.
So basically bad credit is a credit score and credit profile that does not allow you to secure any type of institutional residential mortgage, whether it be from a bank, secondary institutional lender, trust company, credit union, etc.
With the fall out of the resent recession, there are also less sub prime lending options which in the past would have still been able to provide a higher cost conventional real estate mortgage to people poor credit.
Cutting to the case, as Toronto mortgage brokers, are basically saying that a bad credit mortgage in today’s market is one in which the only financing option is through a private mortgage lender.
Private lenders will have higher rates, shorter interest terms, and no loan amortization in most cases. This is basically a form of short term bridge financing to allow you time to repair your credit to a level where you can qualify for an institutional mortgage. And when we say short term, the majority of private mortgage lending terms are for one year.
If you require a bad credit mortgage, we suggest that you give us a call and make an appointment to speak with a member of our team so you can get a free assessment of your mortgage options.