Credit Recovery Starts With Great Advice

Alternative Lending Nathan Lawrence 21 Jan

Today, we are thrilled to launch our Tough Mortgage Resource Page.  We know that it can often be overwhelming for mortgage applicants that have been dealt a tough blow that has negatively impacted their credit or overall financial health.  We have put together this resource to help provide our clients and the wider community with a better understanding of how to apply for a refinance when your credit has taken a hit.

At some point in our lives, most of us will face a challenge that can threaten our financial health…

– Job Loss

– Injury that results in short or long term disability

– A personal health issue or a health issue of a family member

– Or even the death of a loved one.

These types of circumstances often lead to unexpected expenses or reduction in your personal income.  Life changes like these over an extended period of time can result in credit challenges, missed payments or even falling behind on a mortgage.   If you have equity built up in your home, there is likely an option to help set you on the road to recovery.  Our resource helps provid you with some insight into how the process works and what we do to help.

Should you, a family member or friend have additional questions or want to look closer at your options, our team is here to help.  We understand that stress that comes along with tough mortgage applications and we work to help you get things back on the right track.

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Your Mortgage After Bankruptcy

Alternative Lending Nathan Lawrence 24 Sep

By: Nathan Lawrence & Brianna Shortreed

Just because you have declared bankruptcy does not mean you have to dismiss your dream of becoming a homeowner. There are two options when it comes to applying for a mortgage after declaring bankruptcy. The first is to apply to a prime lender, this will take time, you will have to be discharged, and you will have to have a re-established credit history. The benefit is that you will receive a good rate and you can apply with a minimum 5% down payment. The other option is to seek an approval with an alternative lender, this will allow you to purchase a home quicker (sometimes even the day after being discharged from bankruptcy); however, you are going to have a higher rate and will need to have a sizable down payment.

Prime Lender

Step 1 – Wait a minimum of Two Years after Discharge:  After you have been discharged from your bankruptcy you will have to wait before you can apply with a prime lender. The minimum amount of time for most prime lenders is two years, but depending on the lender they might require more time. Some lenders are 3 years and some of the big banks can get up to even 5 or more. Each lender will have their own criteria for approval, your mortgage broker will know all of the specifics. The tricky part here is that your credit has likely suffered during your bankruptcy.

Step 2 – Re-establish Credit: While you are waiting the minimum of two years this is the perfect time to begin re-establishing your credit. You should start re-establishing your credit as soon as you can after your bankruptcy is discharged. You can re-establish your credit more quickly with two major credit cards with a limit of $2000-$3000. Other credit would be a car loan or line of credit. The important thing is to always make your payments on time and keep your balances below 60% of your limit. After bankruptcy it will be difficult to get approved for all kinds of credit, it is important not to give up and ask your mortgage broker about getting a secured credit card.

Step 3 – Save for a Down Payment: The lender will require a minimum 5% down payment from your own resources. This could be from a savings account, RRSP, or investment account. If you can save a 10% down payment you will receive more options. Set a goal and then start making monthly automatic payments into a savings account or a TFSA.

Alternative Lender

Step 1 –Understanding Alternative Lenders: Right after being discharged from your bankruptcy you can consider applying with an alternative lender. However, because you have not been discharged from your bankruptcy for a minimum of 2 years and your credit has not been re-established the lender is going to require a more sizable down payment and your mortgage will come with a higher rate.

The Down Payment: The minimum down payment will start at 20% when a lender looks at a more challenging application. A down payment of 20% does two things. First, it avoids the need of default insurance, and secondly, it provides a lender with some comfort knowing that the client has substantial “skin in the game.”

The Interest Rate: In the world of mortgage lending, a general lender guideline is that “the best predictor of future performance, is past performance.” Which is why credit history plays into a Bank’s lending decision. Alternative lenders price the interest rate based on the strength of an application, and more importantly the strength and marketability of the property.

Step 2 – The Paperwork your Broker Needs: Being prepared for your application meeting is important. Come prepared with the following paperwork

  • Bankruptcy discharge papers
  • Copy of your original Bankruptcy filing documents
  • Photo ID
  • Paystub & Letter of Employment
  • Summary of assets, savings, and investments with values

Step 3 – Exit Strategy: Alternative financing is not a long term plan and you need an exit strategy. Working with your mortgage broker, you need to outline the steps you will take to put yourself in a position to move to a prime lender as soon as you can. Putting thought into improving your finances can help an alternative Lender make their lending decisions.

So even after declaring bankruptcy you do have options when it comes to home ownership. You will have to make a decision on whether it would be best to wait and apply for a mortgage with a prime lender or if you want to speed up the process and apply for a mortgage with an alternative lender. Discussing your options with a mortgage broker will probably help answer some of your questions and make the decision easier for you.

“B” Positive About Alternative Lending

Alternative Lending Nathan Lawrence 24 Sep

Mortgage markets are historically geared towards the prime borrower, these are people with a squeaky clean credit score, solid income, and are considered to be able to easily repay their mortgage. However, not everyone is going to fit into that category but that doesn’t mean you won’t be able to get approved for a mortgage. There are a growing number of Canadians who are turning to alternative lenders. As lending guidelines tighten they are being turned away from larger lending institutions. These lenders are often referred to as B-Lenders, high risk lenders, or alternative lenders, and these types of lenders can be helpful to those that have been hit by bad credit, have recently divorced, fallen on difficult circumstances, or are self-employed individuals. Just because the bank declines an application for a mortgage does not mean that you as a home owner are out of options. Remain positive and visit your local mortgage broker, they will be able to connect you with lenders that consider and approve all types of mortgage clients, including those who may have recently gone through a bankruptcy or consumer proposal.

When applying for a mortgage with an alternative lender, the mortgagor is not going to receive the lowest rates; however, they will be provided with solutions to help a home owner get back on their feet until they can qualify to re-apply for a mortgage with a prime lender. It is not what you would consider a be all, end all, solution but rather a stepping stone to working on building up credit and personal equity. Usually a mortgage term with an alternative lender is shorter, this way the borrower is not stuck with high interest rates for a long period of time. After all, an alternative lender should be a short-term solution.

Alternative lenders will look at applications on a case-by-case basis and they will want to hear the whole story. For example, if you had to apply for a bankruptcy in the past they will want to know why. If you are self-employed alternative lenders will want to better understand the nature of your business and income.

Work with a mortgage broker that has experience helping people with tough mortgages. They should also provide advice and connections that will help you build towards being able to apply for a prime lender at renewal. A good mortgage broker and alternative lender don’t want to see their clients end up in a downward spiral of higher and higher interest rates as they fail to manage their credit. The main goal of any alternative lender is to get the borrower on their feet and happy about being a homeowner.

Three Outcomes You Should Expect from a Well Prepared Alternative Lending Plan

Alternative Lending Nathan Lawrence 24 Sep

By: Nathan Lawrence

  1. Improve personal monthly cash flow – The new mortgage should help you feel more in control of your spending. Consolidate multiple payments into one mortgage payment that is lower than the total of the payments in their current state.
  2. Save you interest – Yes an alternative lender comes with a higher rate, but your broker should be able to explain why that is. By consolidating your high interest credit cards debt and loans into a new mortgage with an alternative lender, you will still likely save a lot of interest.
  3. Develop a recovery plan – You need an exit strategy so your mortgage will be back with an A-Lender as soon as possible. This means discussing credit recovery techniques such as getting secured credit cards and credit management.