Your credit may not be the best, but it’s still possible to obtain a mortgage or refinance an existing one. There are lenders who offer different types of Toronto private home loans and bad credit mortgages that are designed for people in similar situations. As you consider the idea of seeking a mortgage or refinancing the one that you already have in place, do keep the following in mind.
Your Credit Score is Still Taken Into Account
While your credit score is not the primary factor that a high-risk lender will consider, it’s still considered. Take a look at the credit reports from each major bureau. Are all of your scores above 620? If so, you have a decent chance of being approved. There are still some lenders who will work with you if one of those scores is below 620, but the terms will be less in your favor.
You May Need to Provide a Larger Down Payment
Another way to improve the odds of approval is to provide a larger down payment. If the amount that the lender finances are significantly less than the current appraised value of the place, the chances of recouping the investment even if your default is higher.
The same is true if you’re refinancing an existing mortgage. If the amount you want to finance is much less than the home’s value, the lender has less to lose. That means you have a better chance of being approved.
It’s Wise to Wait For a Few Years After a Bankruptcy to Apply
You may not be aware of what’s known in financial circles as a seasoning period. This refers to a specified amount of time that passes between some sort of serious financial issue and the date that you apply for a mortgage. For example, this would be the time between the discharge of bankruptcy and the day you submit the mortgage application.
Many lenders who offer Toronto private home loans and bad credit mortgages consider three years to be a reasonable seasoning period. You might be able to get financing with less than three years between the two events, but doing so will be more difficult.
Make Sure You’re Not Carrying a Lot of Other Debt
One factor that will receive a lot of scrutiny is the relationship between how much you owe and how much income you receive each month. Known as a debt to income ratio, the goal is to determine if you have enough income to honor all of your current debts and still make the mortgage payments on time.
If you do have credit card balances or other unsecured debt, consider paying off as much of it as you can. Once that’s done, apply for the mortgage. With more of your monthly income free to devote to the mortgage payments, lenders will consider you to be less of a risk.
Take a good look at your financial state and determine if now is the right time to consider applying for a mortgage. Perhaps you have little to no debt, some money for a down payment, and several years since the last major financial issue. If so, your odds of being approved, even with a low credit score, are better than you might think.