When it comes to bad credit mortgages, banks steer clear and this often leaves potential buyers feeling hopeless in their pursuit of purchasing their own home.
Mortgage brokers such as our selves, have access to various lenders that approve mortgages based on good credit and those that will also approve bad credit mortgages. The only major draw back with bad credit mortgages is that it requires the borrowers to possess at least 20% of the purchase price for their down payment. This is mainly due to the fact, that any mortgage that exceeds 80% of the value of the home must be insured as a legal requirement. But since the risk ultimately falls on the insurance company, they create the guidelines to their approval policies which amongst other things, includes good/excellent credit. Since lenders that approve bad credit mortgages cannot meet his requirements, they therefore cannot get their mortgages insured, which is why a 20% minimum down payment is required.
Bad credit mortgages also have higher debt servicing limits which allows borrowers the ability to carry a mortgage larger than what would be offered by the major banks. This also why there are instances where clients with good credit refer to bad credit mortgages in order to stretch their purchasing power higher than what the banks will allow
It is important to note that bad credit mortgages are often treated as short to mid-term mortgage solutions that allows clients to buy or refinance their home but allow them time to repair their credit. Once the credit is repaired in the 1-2 year period, they would likely meet the guidelines of the banks and migrate their future mortgages to them through a refinance. Home owners will always want to try to migrate back to the “A” lenders because their rates will always be better than that offered by the “B” lenders offering the bad credit mortgages.
A mortgage broker would determine your current circumstances to see the best possible solution to meet your needs in purchasing a home, even if it works out to be through bad credit mortgages solutions. If you are interested to learn more about bad credit mortgages, please give us a call at 905.455.5005.