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.
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.