Bad Credit Mortgages: What Can I Expect?

Monday, June 15, 2020, 6:00 PM | Leave Comment

You’d love to make the leap from tenant to homeowner, but your credit is not all that great right now.

The fact that most banks won’t work with you means that you can’t take advantage of a great deal on a property right now.

In fact, you may not have to pass up on that home in the nice neighborhood.

With the aid of one of the Toronto mortgage brokerage services, you could find a lender who will be more interested in the ability to pay and the stability of your income and less concerned with what past events lowered your credit score.

With any type of mortgage involving bad credit, there are a few basics to expect.

Don’t let them scare you away, especially if you might be able to refinance once your credit scores are better.

Here are some examples of what you will find with the typical high risk mortgage.

  • The Interest Rate Will Be Higher Than the Current Average

    Bad credit lenders of all types usually require a higher rate of interest. That makes sense, as the lenders are taking a chance on borrowers who are not able to lock in more traditional financing from banks and mortgage companies. The higher interest rate is one way that the lender offsets the level of risk.

    Even so, don’t assume that the interest charged by one mortgage lender is the best one you can receive. Do compare more than one offer and see which one comes out on top. There’s more competition among these types of mortgage lenders than most people realize.

  • You’ll Likely Need to Supply a Higher Down Payment

    It’s hard to find a no-deposit mortgage when your credit is poor. The more likely scenario is that the lender will want you to provide a larger down payment. That leaves a smaller balance to finance.

    Why does this matter? The lender further limits the risk because the amount of the mortgage is a lot lower than the current market value of the property. If you were to default on the mortgage, there’s a better chance that the lender could repossess the property, sell it with relative ease, and still recoup all the investment in the original deal.

  • There May be More Fees and Charges Involved

    Don’t be surprised if there are more fees to pay on the front end, or even some sort of charge during the life of the mortgage. Those can often be bundled into the total amount you will repay. Remember that if you can pay them all up front and not include them in the amount that’s subject to interest, it’s possible to save yourself a few dollars.

  • Many High Risk Lenders Do Report to the Major Credit Bureaus

    Always verify that the lender reports payment activity to at least one of the major credit bureaus. Timely payments will help improve your credit scores over time. That could eventually position you for refinancing the mortgage and lock in more competitive rates and terms.

If you’ve found a property and believe your credit won’t allow for financing, check out a
CloverMortgage solution for those with bad credit. This time next month, you could be settled into your own home.

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