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.