Down Payment
If you have had past credit
problems, lenders may see you as a high-risk
investment. To offset the risk, the lenders will
do two things; first, they will likely want you to
have a down payment. What this down payment will
do is provide a cushion to the lender if at some point
the mortgage were to go into a collection status.
Usually, a 15% down payment is preferred by the
lender, but this is not set in stone. Because
you are applying with an alternative lender, some
lenders have other formulas that they use.
Secondly, expect to pay a higher interest rate than if
you had good credit. Remember that just because
you're paying a high rate of interest now, this does
not mean you will always have to pay high interest.
If at the time that you renew your mortgage a few
years down the road your credit score is higher, you
will be in a position to renew at a much lower rate,
saving you thousands of dollars over the term of the
mortgage. 100% financing is available for those
with a previous bankruptcy if the bankruptcy has been
discharged for at least 24 months.
Re-established credit in the form or a credit card or
a loan that has been active and in good standing for
12 months is required.
Income Requirements
You will need to show a prospective
lender, whether institutional or private, that you
have sufficient income coming in to pay the required
mortgage payments. Alternative lenders may also
be willing to loan money with less consistent income,
such as self-employed income or commission based
earnings.
Property Requirements
This may be one of the largest
factors in a tough mortgage situation. The
lenders will want to see a property that has value,
and one that is priced consistently with other
comparable properties in the area. You will
likely be asked to have a property valuation completed
by the lender to ensure that the property is worth the
amount you are paying. Properties in densely
populated urban centres are more attractive to
alternative mortgage lenders because the property will
likely maintain it's value, and in most cases increase
in value in the future. The chance that a
property will sell fast if you were to default on the
mortgage payments is appealing to a lender.
Credit Requirements
If the down payment is large (ie.
over 20%) credit becomes less of an issue. Most
lenders will require you to have a credit rating
already, whether good or bad. If you do not have
any credit established, it may be wise to apply for a
Credit Card or Secured Credit Card to help establish a
credit rating.
Previously Bankrupt
A previous bankruptcy does not
automatically disqualify you from owning a home.
Lenders do prefer that your bankruptcy be discharged for
at least 2 years before they are willing to loan 100%
of the value of the home. If however the down payment that you
have available is quite substantial, this is not
always the case either. If two years has past
since being discharged from bankruptcy, it may be
possible to obtain financing with anywhere from 0% to
15% down, depending on your current credit situation.
If two years has not yet past since since being
discharged from bankruptcy, most lenders will like to
see a minimum down payment of 15%.
Lender/Broker Fees
For individuals with good credit,
fees will not likely apply as the broker is paid by
the lender. In an alternative mortgage
situation, you may be required to pay a fee to the lender or
broker for the work involved in obtaining the
financing. Mortgages
obtained for individuals with bad credit tend to be harder
to obtain than for individuals with good credit and
therefore a fee is charged for time spent securing the
financing.
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