Securing a mortgage is the most significant step towards homeownership, and while the process remains largely unchanged, Canadians with bad or bruised credit will encounter some unique challenges. In this updated blog, we will explore the adjustments in mortgage requirements and provide valuable insights for Canadians in 2023’s lending landscape.
Credit Scores and Down Payment: Credit scores play a crucial role in determining a lender’s risk assessment. Traditionally, individuals with excellent credit (typically above 650) could obtain a mortgage with a minimum 5% down payment. However, for those with poor credit, additional considerations come into play. Scores below 650 often require exceptions, leading to higher down payment requirements. It’s not uncommon for banks to ask for a 10% down payment or more (upwards of 20%) in these cases.
Alternative Lenders (or ‘B’ Lenders): When major banks are unable to make exceptions for individuals with poor credit, the alternative lending route becomes a viable option. These lenders, commonly referred to as B lenders, may provide mortgages up to a maximum of 80% loan-to-value, requiring a minimum 20% down payment.
Costs Associated with Alternative Lending: Applying for a mortgage through alternative lenders usually entails additional closing costs not typically encountered with traditional lending. These costs may include lenders’ fees, commitment fees, appraisal fees, brokerage fees, and others. It’s important to consult with a mortgage professional to determine the specific costs applicable to your unique situation as costs will very depending on the bank and mortgage product.
Understanding Your Credit Score: Before diving into the mortgage application process, it is crucial to obtain and understand your credit score. Knowledge of your creditworthiness helps you make informed decisions and prevents potential disappointments later. Take the time to review your credit report, identify areas for improvement, and work towards enhancing your credit score if necessary. We have published many blogs and tips on how to improve credit scores.
Affordability Considerations: Affordability is assessed on a case-by-case basis. B lenders will offer mortgages at slightly higher interest rates, affecting your debt servicing ratios. However, these types of banks and lenders also allow higher ratios than the major banks, enabling borrowers to afford a higher amount of financing. We will guide you through the process to ensure you find the most affordable and feasible option for your circumstances.
Conclusion: Mortgages are available for applicants, whether they have excellent credit or bad credit. When applying for a mortgage in Canada, it’s essential to address credit challenges head-on and explore B lending options if necessary. By understanding your credit score, working to improve it, and being prepared in advance, you enhance your chances of securing a mortgage that aligns with your homeownership goals. Our team is dedicated to supporting you throughout the process, offering expert guidance and insights to ensure a successful mortgage application. Contact us early to benefit from valuable tips and strategies that will position you for a confident and successful home purchase. Remember, taking the time to improve your credit can make a significant difference, especially when faced with limited resources for a larger down payment. Call us today at (905) 455-5005.