A denied mortgage application can be discouraging and devastating. However, your journey will not end there. Buying a home can be exhausting, and a bad credit score won’t help either. If you do not maintain your credit score well, most likely, this will happen to you.
A mortgage lender will draw your approval based on your credit score. Is it high or low to get a mortgage?
A credit score below 660 points is considered low, according to Equifax. However, scores below 660 don’t mean you won’t qualify for a loan. But you won’t be able to get the best deals in the market.
And if you get a denied mortgage application, there’s still a way by consulting a private mortgage Canada.
What is a bad credit mortgage?
It is a term used for individuals who have bad credit yet want to apply for a mortgage. Bad credit mortgage is primarily available through alternative lenders.
By checking your credit report first, you’ll be able to tell if you qualify for a traditional loan. Some banks allow you to do a “soft check” on your report, which will not affect your credit report.
When you get denied a traditional loan, a private mortgage is one of the available options.
What is a private mortgage?
A private mortgage provides financing for purchasing a home, and it can be an individual lender or a group that can lend you a mortgage that isn’t a bank or your traditional mortgage. A private lender usually doesn’t check on your credit score. They will prioritize your needs.
Traditional loans take weeks to get approved, while a private mortgage will only take 48 hours, and for more straightforward deals, it can only take one day to have the money on your hands.
Before considering a private mortgage, here are the pros and cons of it.
Pros of private mortgage:
1. Short and quick approval
– private mortgages usually take1 up to 5 days.
2. Qualify Easily
– as long as you can pay your interest, you are a perfect candidate for a private mortgage.
3. Avoid stress test
– private mortgages have different rules when it comes to lending money. And unlike your loan for a traditional loan, you’ll have to pass the stress test to assure your lender that you can pay.
4. Short-term and bridge loans.
– a private mortgage can help you stay afloat until you have a more stable financial source. For instance, you want to buy a home but have yet to sell the old property. A private mortgage is a good choice for you.
Cons of a private mortgage.
1. Higher interest rate
– aside from the already high-interest rates, brokers and lenders add their fees to the sum, increasing the overall interest.
2. Extra costs
– extra costs on your loan will include lender’s fee, broker fee, and legal fees.
3. Short payback period
– occasionally, the payment for drinks will last for only 24 months.
Bad credit won’t stop you from getting a mortgage, but good credit is also an advantage when you plan to get a mortgage. You’ll save a ton of money when you fix your credit first or, better yet, maintain it.
Considering the risks of a bad credit mortgage, it’s hard to decide hastily. Proper preparation before applying will give a smooth transaction between you and the lender.
Here are some things you need to prepare for a flawless transaction with your lender.
1. Find a private mortgage lender
– choosing the right mortgage lender for you is very important when applying for a riskier loan. You can ask a friend or a family member to be your private lender. That’s a more straightforward method than asking a stranger to be your mortgage lender.
2. Stake out the terms of your agreements
– private mortgage lenders are easier to negotiate with since they have different guidelines for lending.
3. Prepare your documents
– mortgage note and deed of trust are a few documents you want to prepare when applying for a private mortgage. It is for assurance that you will pay your mortgage since it’s a risk for the lender.
4. Consult a real estate attorney.
– an attorney within the real estate field can help you draft an agreement and can help you understand better the jargon used on the terms provided by your mortgage lender.
Conclusion:
The question is, “Are private mortgages worth it?”
It is worth it if you are struggling with bad credit and want to buy a new home. However, you will only be in this situation if you have good credit. You need to acknowledge why you have bad credit to make it a good use of time and money.
Because admit it or not, if you do not cut the bad habits that put you in bad credit, then there’s a possibility that you will repeat the same cycle over and over again.
