In the Canadian mortgage market, there are three major classifications of mortgage lenders:
A – Traditional (prime) lenders (chartered banks, virtual mortgage houses)
B – Non-conforming or sub-prime lenders
C – Private lenders
You may already know about traditional sources. These would be your chartered banks (Scotia, TD Bank, etc..). Thee are also large virtual mortgage houses such as First National, ING, etc. These lenders spotlight primarily on what is called in the industry, the prime market. These lenders focus on borrowers who have good jobs/ credit and are purchasing homes within the traditional guidelines.
For borrowers that cannot qualify under the “A” guidelines, the next option is to try to fit within sub-prime lender’s guidelines better known as “B” lenders.
At Vantage, sub-prime lending is one of our specialties and we are fully qualified to assist you in this matter.
Sub-Prime (non-conforming) Lenders- B Lenders
With the mortgage meltdown in the US, many sub-prime lenders have been forced to close shop or switch their business to prime lending. During the past year, we saw many lenders leave the sub-prime market. There are still a few lenders left in this market, but they have tightened up their credit requirements and interest rates.
Sub-Prime lenders do not provide high-ratio mortgages (i.e., your down payment must be 20% or more of the purchase price of the home). These lenders charge a premium between 1-3 percent over traditional interest rates and usually do a much shorter term.
Unfortunately, prime lenders are very strict when it comes to borrowers that have poor credit. In In many cases it’s a catch 22. Debts and minimum monthly payments are too high compared to income so month after month payments are neglected or missed. How can you payoff your debts if you cannot refinance due to your poor credit history? Many borrowers are facing a situation that unless they can refinance their house and use the equity to pay off their debt, they will never be able to afford catching up.
If you need a mortgage and have a blemish on your credit record, or if you need to re-mortgage to pay off bad debts, there are lenders who offer “bad credit” mortgages.
There are 10 basic guidelines you need to know when getting a “B” loan
- Property needs to be under 4 units
- Property can be owner occupied or a rental
- Property must be in a marketable urban area
- Qualifying ratios are higher making it easier to “fit”
- Down payment or equity minimum is 20%
- Interest rates will be between 1-3% higher than standard rates
- Terms can be as low as 1 year
- There are no variable mortgage options only fixed
- Current property mortgage cannot be in default with another lender
- Mortgage payment history is required for a period of 6-12 months
It’s important to note that although the above is a guideline, every “B” loan is different and treated differently. The number one criteria is “Does the loan makes sense?”.
It is an unfortunate fact that individuals with bad credit are going to have to pay more for their mortgage than someone with excellent credit. However, at Canada East Mortgages, our goal is to help you make your situation better and in most cases will place you in a short term and guide you on how to fix your credit issues so that you can enter into a prime bank as quickly as possible.