Bad Credit Mortgage Brokers

A bad credit mortgage is a mortgage approved based on a borrower’s low credit score. The process to get a mortgage with bad credit is similar to a standard mortgage. However, it’s important to note that interest rates may be higher, and terms will often be less favourable.

A licensed mortgage broker for individuals with bad credit may suggest a debt consolidation mortgage to utilize the money from your lender to pay off multiple outstanding payments and improve your credit score and to increase your chances of making all your payments on time.

If you have bad credit, getting a mortgage may feel out of reach, but the reality is that there are solutions that can help your situation. A licensed mortgage broker can assess your bad credit and determine the right type of lender to help you meet your financial goals.

At Stonefield Mortgage, we help clients with bad credit find a mortgage solution best suited to their needs. With access to the GTA’s top AAA, B, and private lenders, we have the resources and insights to ensure our clients get approved and can start reimagining their financial futures.

If you’re unsure whether you qualify, or if you just want a reassuring professional to walk through the process of a bad credit mortgage, contact Stonefield Mortgage (with that “Book a Call” tab in the top-left corner) to learn more.

Several factors contribute to your credit score, but the most common way to bruise your credit is by missing payments. You can typically explain one or two missed payments to a lender – especially if they’re a product of unforeseen circumstances or oversight – but routinely missing payments will throw up a red flag in the financing process. Likewise, a lender will look at other benchmarks to determine your fitness for a mortgage product.

Here are some examples that would trigger a low credit score:

• Multiple late payments on mortgages or other loans
• Consumer Proposals /Judgments
• Bankruptcy
• High balance/utilization of credit cards and credit lines

If you have a low credit score and a lot of high-interest debt, the easiest solution is debt consolidation. Many clients will use a bad credit mortgage to consolidate and pay off their outstanding debt. This will help to improve your credit score and reduce your monthly interest payments significantly. View our page on second mortgages or debt consolidation for a deeper dive into how this works.

Your average borrower can receive a mortgage from various types of lenders, which we refer to as A, B, and private mortgage lenders. Here’s a short breakdown of the differences between lenders.

A Lenders (or Prime Lenders)

Traditional banks are examples of prime lenders. They are generally looking for clients with a minimum of 650-680 credit (depending on the down payment for your mortgage), as well as salaried income and good debt servicing capabilities. These products generally have the lowest rates, as they are the lowest risk due to the borrowers character. There is little flexibility in the type of products offered or the lending requirements, though. Unfortunately, receiving a bad credit mortgage from an A or prime lender can be very difficult. The goal is to get back to borrowing from A lenders as soon as possible.

Alternative or B Lenders

Clients who do not fit the strict requirements of an A lender will generally go to a B lender or Alternative Lender. A B lender or Alternative Lender is an institution that specializes in bad credit mortgages and other lending that require more flexibility. The minimum credit score for these lenders is generally 500, and they offer various programs for borrowers who are not long-time salaried employees.

Some examples include borrowers who are in business for themselves, have self-stated income and clients who have recently changed employers/positions. They have more variety in their lending products and have much more flexibility in their lending guidelines. Some examples of B lenders in Canada are Equitable Bank, Home Trust, Canadian Western Bank (Optimum), RFA, CMLS and many more. Many A lenders that are non-bank lenders have opened up B lending teams in the last 10 years, so the space is competitive with many options.

B lenders can have very competitive rates and products – the major negative is most of their loans come with a lender fee. In many circumstances, these are the best lenders you can receive a bad credit mortgage from (depending on your credit, debt servicing capabilities and other factors). B lenders are the ideal solution for clients with credit that excludes them from borrowing from A lenders.

Private Mortgage Lenders

Private mortgages are generally the surefire solution when looking to obtain a mortgage with bad credit, specifically for clients who cannot qualify with A or B lenders. Using a mortgage broker for bad credit mortgages is a great way to alleviate the stress of sourcing these funds. Since these private mortgage lenders are privately owned and not regulated like the other lenders, they have different factors determining who they will lend to.

While credit may still be a factor in their process, they are generally equity-based lenders. This means they will do an evaluation (or order an appraisal) on the property in question. They will happily provide a mortgage if they believe there is enough equity and a reasonable way to service the debt. Sometimes, lenders do not care about your credit, so this is a practical solution for a bad credit mortgage.

When we connect our clients with a private lender, we always use it as a short-term solution while we improve their credit. While private lenders are flexible in their lending terms, their flexibility comes at the price of a higher interest rate and higher fees – due to the increased risk.

That is why it’s not a long-term solution – but it is sometimes necessary as a strategy to use while we help you to repair your bruised credit. We have built many relationships with great private mortgage lenders who offer very reasonable repayment terms and flexible terms such as partial prepayment or fully prepaid terms. You do not have to disturb your monthly cash flow with large monthly payments.

Another significant benefit of private mortgage lenders is they can approve financing very quickly, whereas most A and B lenders will take 3+ weeks. We have been able to fund deals with private mortgage lenders in less than a week.

Stonefield Mortgage makes getting a bad credit mortgage in Toronto smooth and simple.

If you have bad credit, getting a mortgage doesn’t have to feel out of reach. There are steps you can take, including working with a mortgage broker who specializes in taking on these kinds of cases.

Lenders providing a mortgage for bad credit customers will generally underwrite the deal differently than other lenders. Working with a mortgage broker specializing in bad credit helps simplify the process, provide necessary guideposts and ensure you’re getting the right mortgage solution. Here are some of the things a bad credit mortgage broker in Toronto will ensure you have ready:

Have your documents organized and ready to share with your broker

Any analysis of your financial position and options starts with a thorough look into your current situation. You should be ready to fill out an application and have the following information and documents.

• Income Documentation (T4’s, pay stubs, employment confirmation letter, bank statements)
• Debt and Liability information (debt statements, lease contracts, existing mortgage statements etc)
• Asset Information (Proof of your assets incl statements for any investments)
• Property documentation if you own a property (recent property tax bills, proof of condo fees, mortgage statements)
• Identification (You will always need 2 pieces of valid ID to get a mortgage or transact in real property)

Have a large down payment for a purchase

With a bad credit mortgage, the lender will want more equity in the property to be available. The larger the down payment you can provide, the less risk for the lender. This will also prove that you have more “skin in the game” and do not want to default on your mortgage, which could lead to more favorable interest rates and terms.

Prove your debt servicing capability

A combination of a letter of employment, pay stubs and proof of at least 3 months of your bank statements of where your income is going is a great way to show that you can service the debt that comes with a bad credit mortgage.

Get a cosigner or a guarantor to strengthen your file

If you have a family member, business partner or friend with a strong credit history and income to co-sign or guarantee your loan, this is a huge step towards getting a bad credit mortgage. This gives the private mortgage lender peace of mind that someone else can step in and alleviate the issue if you cannot make your monthly payment. A bad credit mortgage broker may recommend bringing a strong co-signer or guarantor on the file, allowing you to negotiate a better rate.

Show proof that personal, business and property taxes are not in arrears

Part of the risk of a bad credit mortgage is that there will be surprises if the mortgage defaults. Prove that you are on top of your personal, business, and property tax – it indicates you have a higher chance of repaying your loan without issues.

Have an appraisal ready

As mentioned in the section above, many B and private mortgage lenders’ underwriting relies on the property’s equity, as a bad credit mortgage is easiest to obtain when a lot of equity is available in the property. This is where an appraisal proves essential. An appraisal helps you and the lenders understand your home’s real market value. Make sure you speak to a bad credit mortgage broker so they steer you toward reputable appraisers in your area. An appraisal will generally cost approximately $500, but in some cases, an appraisal can be waived entirely!

If you have cross-collateral available, offer it

Most mortgage lenders base their risk on the loan-to-value (LTV) of the property. This is calculated as the debt on the property(ies)divided by the property(ies)value. If you have multiple properties and are willing to put one up as cross-collateral, this will reduce the LTV and the risk for the lender. See the section below for an example of how this works.

To illustrate what the process might look like, let’s explore a case study. This is by no means the only way a person can secure a bad credit mortgage, but it helps us shade in the details when discussing a complex financial topic. Consider this:

A client who used to have great credit recently went through some difficult times. Their business went bankrupt, and this caused them to begin missing payments on lines of credit and credit cards – which badly affected their credit score.

Subject Property Details:

• 1st mortgage of $600,000.
• Property value is $800,000
• LTV on this property is 75%

The Challenge:

• The client may not be able to go to a prime lender due to the recent bankruptcy and missed payments.
• The client cannot go to a B lender because they do not have stable proof of income since their recent bankruptcy.
• It will be challenging for a private lender to add a second mortgage on this property as the LTV is already relatively high.

The Solution:

Our bad credit mortgage broker determined that this client had a secondary property and recommended using this property as collateral.

• Property 2 has a 1st mortgage for $400,000.
• Property Value is $1,000,000.
• LTV on this property is only 40%.
• The combined LTV is now ($600,000+$400,000) / ($800,000+$1,000,000) = ~55%

With the additional security, the private lender was happy to offer a 12-month, partially prepaid term with a competitive interest rate as the risk became significantly lower. Within that 12-month term, we worked with the client to consolidate their debt, improve their credit and get them back to a B lender.

There’s no sense sugarcoating the obvious. While Alternative, B and private mortgage lenders can get you out of a jam, they have their downsides. It’s best to look at them holistically in the context of your financial future. In that vein, here are the main benefits of a bad credit mortgage:

• Financing can happen much faster than with a conventional mortgage
• Terms are very flexible and negotiable (for example, we can secure you a loan with no prepayment penalty and a term that is completely open)
• Private mortgage lenders are willing to work with you to create creative solutions that require out-of-the-box thinking that banks / b lenders refuse to do

On the other side of the coin, a main “con” associated with a bad credit mortgage is the high cost of borrowing. This is primarily from the higher interest rate, and the lender and broker fees associated with the loan. That’s why we generally advocate for these loans as stopgap solutions on your way toward a brighter financial future.

Bad credit mortgages are one of our areas of expertise. Our team has over 15 years of mortgage industry experience, and we have developed many relationships with excellent Alternative and private mortgage lenders.

It is also important to know that many private mortgage lenders can try to take advantage of clients – while our private mortgage lenders understand that the goal is to help clients and their financial situation. Our goal is always to work with you, use a private mortgage loan as a temporary solution, and get you back to the B lender space where the rate and fees are lower. From there, we use the B mortgage as a short term solution as well – with the final goal to get you back to an A lender.

Helping people with their financial situation is something that we strive for at Stonefield Mortgage. We have bad credit mortgage brokers and mortgage brokers who specialize in debt consolidation and credit improvement solutions. The first step is to reach out for a consultation or to start an application. We are always happy to share our expertise and recommend options for your unique situation.

Stonefield Mortgage is a leading bad credit mortgage broker in Toronto with access to the top lenders in the GTA.
We understand first-hand the hesitation and overwhelm clients face when they have bad credit and want to secure a mortgage. That’s why our bad credit mortgage brokers are committed to advocating on your behalf and ensuring your approval — so you can work to meet your short-term and long-term financial goals.

Our bad credit mortgage services are available in:

• Vaughan
• Mississauga
• Brampton
• Etobicoke
• Pickering
• Ajax
• Aurora Oakville
• Markham
• Richmond Hill
• Scarborough
• Newmarket
• Whitby
• Toronto

Contact Stonefield Mortgage to set up a free 15-minute consultation.