Having bad credit can prevent you from getting the mortgage that you need. When you want to take a mortgage, the traditional lenders take the credit score into account. If you have a bad credit score, it can be difficult to qualify for a mortgage. However, that isn’t always true. You can still get a mortgage if you follow the proper steps and reach out to a bad credit Certified Mortgage Broker like https://certifiedmortgagebroker.com/bad-credit-mortgages-toronto/ to help you handle the case. Here is how they can help you.
When you have a bad credit mortgage, the main focus is on the ability to pay back the loan on time and not on the past failed payments. For that, you will have to prove to the lender that you are earning enough to cover the monthly payments until the mortgage term is over. Once the lender has gone through your records, they will use the Gross Debt Service Ratio or Total Debt Service Ratio to determine the amount to give you. Mostly, lenders only approve of applications that have less than 30% of the GDS and TDS.
Larger Down Payment
With a private mortgage, you are required to pay at least 20% as a down payment. When you have a large down payment amount, it helps to reduce the mortgage needed to top up the purchase price. In case of bad credit, it will help to bring down the risk involved. The more you can pay, the less the lender will have to lend to you. However, if you are unable to pay a large down payment you can always use one of your properties as cross collateral. Some mortgage lenders also give you the option to use property from a family member or a friend as collateral. When you have collateral properties, it increases the loan to value ratio. It helps to reduce the lender’s risk. When the lender’s risk is lesser, the interest rates are lower. It enables the lender to give you better payment plans.
Property appraisal tells you the value of the property. This will help the lender to determine the amount of bad credit mortgage to lend. You are required to have a property appraisal before taking any mortgage. It is essential to get your appraisal done by a reputable professional. Some lenders will request you to get it done by a company they have worked with before. However, the others will let you choose your appraisal company. It is highly suggested to get at least two appraisals. This will help you to get the average value and accurate results. As the appraisal gives you the property value, the lenders will use this information to calculate the loan-to-value ratio. This will help to ascertain the level of risk involved in lending you money. Some of the lenders will be able to give you up to 90% of the property value. However, most only give between 80 to 85%.