February 22, 2019 Kristen Godel

So You’ve Been Declined for A Mortgage By A Bank – Now What?

If you’re looking to purchase or refinance (or possibly even pull out additional equity) and your bank has declined you due to bad credit, don’t worry! There are many institutions that will fund bad credit mortgages.

Bad credit mortgages must be funded through a mortgage brokerage like ourselves as the 5 big banks (and other smaller public institutions) only lend in prime mortgages… in other words for applicants with good credit that meets their minimum requirements. We have access to the Alternative – A banks (B lenders) that do fund bad credit mortgages, and there are quite a few, so options are not as limited as you might think. Bad credit mortgages are on the up-rise to be quite honest. With increasing costs of living, inflation in home prices and low cost of borrowing, a large percentage of the population has taken a hit to their credit. Credit (or borrowing) is often the thing that keeps people afloat during hard times… and hard times come easily these days.

Institutions that fund bad credit mortgages are still concerned about credit worthiness overall, but boy are they much more laid back and thankfully so! In fact, the whole reason these types of institutions exist at all is for the very reason of funding bad credit mortgages or harder to fund deals (either due to credit, the nature of income or other related factors). Some of the most common credit scenarios they are willing to work with are:

  • Past bankruptcies or consumer proposals
  • Bad credit as a result of collections (R9’s)/executions
  • Late/missed payments or arrears
  • Thin credit (meaning not enough tenure/active credit trades)
  • Lack of credit (or what the bureaus refer to as beacon reject (literally meaning you do not have a score)

There are many more reasons your credit could be considered less desirable, but most Alternative – A lenders will certainly work with any of the above mentioned. Now, a few important things to understand about bad credit mortgages are as follows:

  • This probably goes without saying, but bad credit mortgages will be priced higher than a prime mortgage from a big bank. The rate ranges depending on overall borrower profile, but rates can be as low as 3.89% or as high as 5.50%.
  • Bad credit mortgages can only be funded to 80% of the property value/purchase price. If you are purchasing, you will certainly need 20% as a down payment (or secondary financing is absolutely necessary). If refinancing, a bad credit mortgage can only be taken to 80% of the appraised value and nothing higher (in rare cases 85% but those programs are slowly being phased out).
  • Bad credit mortgages are shorter term solutions (typically 1-3 years). Since credit blemishes take anywhere from 18-24 months to repair, most borrowers will either choose a 1 year term at a time (and renew when applicable) or take 2 years and reassess at maturity.
  • Bad credit mortgages typically include higher closing costs overall as there may be lender/brokerage fees applicable for these types of mortgages. Those fees cannot be quoted in this blog as a fixed amount as they are usually a percentage of the loan size, but we always quote our clients on total costs prior to having them sign any documentation. These costs cover application fees, liability insurance and administrative costs and all other work involved in financing the mortgage.
  • B lenders are not only a good option for bad credit mortgages, B lenders are also great solutions for clients with harder to prove income (ex. Commission, part time, contractual work, seasonal work, business for self).

When you’re declined by any bank for credit related issues, don’t quit. It’s only over when you decide it’s over. There are options and solutions catered for these types of situations. Is a B lender a guarantee for bad credit mortgages? Not necessarily, but in most cases it’s very likely. We’ll work with your scenario to arrange and present the file in the most favourable option. Approximately 65% – 70% of the mortgages we fund on an annual basis are bad credit mortgages.