Bad credit mortgages
There are many home loan options available for individuals with bad credit who have been turned down by the major banks. While you might not be able to qualify with a prime lender at the lowest possible mortgage rate, there are many institutional lenders and private lenders who specialize in mortgage products for individuals with bad credit scores.
| Description | Credit Score1 | Mortgage Rate2 | Example Lender | |
|---|---|---|---|---|
| Major Banks - Prime Lenders | Financial institutions including the big banks with more conservative lending requirements | 600-900 | 3.49% | TD |
| Trust Companies - Bad Credit Institutional Lenders | Financial institutions catering to those with bad credit or individuals with limited proof of income. | 550-700 | 5.49% | Home Trust |
| Private Lenders | Private companies or individuals who loan funds to borrowers who need a second mortgage. | <600< />d> | 10-15% | WealthBridge Corporation |
Other important factors
You will notice that for some credit scores - take 650 for example - you may be able to qualify for a loan with either a prime lender or a bad credit institutional lender. When in-between ranges, lenders will look at additional factors, including:
1. Income
Prime lenders can still work with a credit score between 600 and 700, provided you can demonstrate that you have a dependable source of income. Your income can fall into one of two categories:
- Confirmable income is preferred by lenders, and is proven through Notices of Assessment (NOA).
- Nonconfirmable income, common among self-employed or commission-based employees, forces lenders to use an estimate of your income, based on the average income typical of your employment.
2. Down payment (if purchasing)
The higher your down payment, as a percent of your home value, the better. A large down payment demonstrates to lenders that you can save money and you have more at stake in the property.
3. Equity (if refinancing)
If you are refinancing, lenders will allow you to increase your mortgage up to a maximum loan-to-value ratio of 85%. However, they always prefer to lend when you have more equity in your home, as the loan is backed by a more secured asset.
4. Property type and value
This is, arguably, the most important criteria for being approved by a bad credit or private mortgage lender. To qualify with a bad credit lender, your property must undergo a strict appraisal and be rated average-to-good before you can be approved for a mortgage. Because other factors are risky (i.e. your credit score), lenders need to secure their investment in case you are unable to keep up with mortgage payments.
In summary, prime lenders can offer the best mortgage rates to clients who have great credit scores. Because bad credit institutional and private lenders take on riskier clients, they compensate by charging higher interest rates. However, these lenders are no less reliable than prime lenders and can still connect you to a good mortgage product to meet your financial needs.
References and Notes
- Two clients with the same credit score may not qualify with the same lenders. In addition to credit score, lenders will look at income, debt obligations and equity in property, as well as the property itself.
- Mortgage rates listed are examples of 5-year fixed rates.
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