Can a Mortgage Broker Help You if You have Bad Credit?
December 10, 2015 | Posted by: Ron Chan
So you've just been declined for mortgage financing at your bank or credit union. The reason? You have bad credit. Can a Mortgage Broker help you? Maybe.
Mortgage brokers are a common bunch in the United States most likely due to the fact that there are so many competing banks and credit unions vying for mortgage business. In Canada Mortgage Brokers are not quite as accepted but are becoming more and more accepted as more people become aware of the benefits of using one. In Canada, it's more the norm to approach the bank or credit union for any financing needs because that's how our banking system has worked historically. With a relatively small population base (compared to our US counterparts) the Canadian banking system eveloved to a level where there are only a few major players such as Royal Bank, TD, CIBC, ScotiaBank and Bank of Montreal that account for the vast majority of banking business. But when one gets declined for mortgage financing at a bank or credit union they are at a loss for options.
In comes the mortgage broker, can they help? It depends. The main value propositon of using a mortgage broker is that they work for you to get the best rate possible on your mortgage. Mortgage Brokers in Winnipeg have access to over 70 different lenders which also happen to include the big five banks mentioned above. In a good majority of cases they can get better rates than you could at your own financial institution. Why? because mortgage brokers are a low cost distribution source for the financial institutions. How? Since mortgage brokers are self-employed commissioned salespeople banks don't have to worry about bricks n' mortar costs and training costs associated with this delivery method. To look at it another way, if a mortgage broker doesn't send the bank a deal there is no expense on the bank's part because the mortgage broker is not a bank employee.
In cases where the applicant/borrower has bad credit the options begin to narrow a bit. There are still some lending companies that will provide financing for people with bad credit. Having said this, with the fall-out from the sub-prime mortgage meltdown in the United States the shock waves were felt in Canada as well with the exiting of a couple of companies that specialized in bad credit mortgages.
Is there another level or option of financing available? Yes. There are private lenders that may be willing to help depending on the situation. Some mortgage brokers will have access to private lenders but most will not because 90-95% of their business is easy credit business. So it's important that if you are dealing with a bad credit situation that you ask your mortgage broker about private lenders.
Private lenders are pretty strict about lending their money, especially in bad credit history situations. At the end of the day, they also want to be secure that they are going to get their money back. In Winnipeg, 99% of the private lenders that exist will only lend up to a maximum of 75% of the home's appraised value. Why? This is the private lender's only way of reasonably ensuring that they'll get their money back in the event of default. After all, the really is that there is a history of bad credit to deal with.
But what if you need more than 75% loan to value on your home? If you live in Winnipeg, you may be in luck. There are some private lenders that are prepared to go to 80-85% of the the home market value.
So if you find yourself in a predicament where you've been declined at the bank or credit union despite having good equity or down payment give me a call at 204.290.9950 or email me at ronchan@invis.ca Or if you would like a free no obligation review of your situation please apply here I will follow up with an email or phone call to discuss your situation.
