Chances to Get a Second Mortgage with Bad Credit

If you need funds quickly, but don’t have cash in the bank and can’t get a loan, borrowing on your property is a good next option.

In fact, getting a second mortgage in Toronto is usually cheaper than a loan because you are using equity in your home as security for the borrower.

Second Mortgage in Toronto

However, there are certain steps you can take to improve your chances of getting a second mortgage. If you have applied for a loan and been refused, you’ll know the reason why—and it’s most likely bad credit history.

First, use one of the three main online credit bureaus to find out what your credit score is. By checking out your credit rating, you should be able to pinpoint the problem and possibly fix it. For example, if you are weighed down with credit card debt, find a way of paying it off. Or, at the very least, increase your monthly repayments.

How to Take Out a Second Mortgage

Now, let’s take a look at the options. The first one is to take out a second mortgage, using the equity in your house as security against the second loan. If your bank or current mortgage lender won’t give you a second mortgage, then shop around. The best place to start is with a decent mortgage broker, who will have access to many different sources of funding, including online banks and financial firms.

When it comes to a second mortgage, 99 percent of the time you will pay a higher interest rate than the rate on your first (primary) mortgage. Your repayments will likely be higher, too. Don’t just take the first mortgage on offer. If the terms don’t work for you, such as a high interest rate or high payments, then ask the broker to seek out alternatives. You need to find a second mortgage that works for you and within your budget.

Finally, with this first option, you will likely be in the position of making two mortgage payments a month. That can stretch your finances and make covering your monthly expenses challenging.

Cash-Out Refinance Loan

The second option is to consider a cash-out refinance loan. This option is a new mortgage loan that replaces your current mortgage and, in addition, gives you the sum in cash that you want to borrow. The interest rate is going to be higher, and your monthly payments will be higher too. That means you have to think through this option carefully. If you suddenly lost your job, how would you make the second mortgage payments, as well as your day-to-day living costs?

If, after exploring every option for a second mortgage, you can’t find a lender, think about asking someone to co-sign your loan. This means that the co-signer will be responsible for the debt if you fail to make your payments.

Get the Facts Before You Borrow

Despite everything we’ve said above, you may find that the interest rates on the second loan are in fact lower, depending on the current interests rates and the economy.

Whatever you decide to do, check out the overall costs, conditions, and terms. And if something is confusing or doesn’t make sense, be sure to ask questions. At Northwood Mortgage, we will help you find that second mortgage in Toronto—even if you do have a bad credit rating.

source: northwoodmortgage.com

How To Secure A Mortgage When You’re Self-Employed

There are many advantages to being self-employed, but one disadvantage is that it is much more difficult to prove your income to financial institutions. It gets especially complicated when your income is much less on paper than it actually is— especially when you factor in the deductions made from business expenses. Recent rule changes have made it much more difficult for self-employed workers to qualify for a loan, but if you are self employed, there are ways to increase your chances of successfully securing a loan.

Have A Good Credit Score

Although it is not the only requirement for securing a mortgage, it is still critical. If you know your credit score is low, try to improve your score before approaching the bank, because it is one of the first things they will look at.

Keep Your Business Books

Keep track of your financial records. Practise good bookkeeping and keep your receipts handy. The lender will want to see the progress of the business over a period of time and ascertain its value. It is also important to show regular bank statements to show your income.

Be Prepared To Discuss Your Business

The lender will want to know the nature of your business—especially the financial aspect. Know the business’ income and expenses and how much it is worth or projected to be worth.

Write Off Fewer Expenses

While writing off as many expenses as possible has been the traditional way for business owners to lower their taxes, they may also end up qualifying for a smaller loan. Before you apply for a mortgage, reduce the number of expenses you write off. You may end up paying more in taxes but you will find it easier to secure a mortgage at the amount you want.

Pay Yourself A Salary

It might be easier to treat yourself as an employee in your own business and simply pay yourself a salary. The banks may be more inclined to treat you as a salaried employee rather than a business owner.

Being self-employed is quite rewarding, and with a little planning and forethought, it doesn’t have to inhibit you from accessing a mortgage. The more information you can provide to the lender about the finances and operations of your business, the easier it is to secure a mortgage that is right for you. At Northwood Mortgage, our specialists can help you as a self-employed person to secure the best available mortgages. Give us a call today and book a free consultation.

source: northwoodmortgage.com

What Income Verification Methods Are Required When Applying For A Mortgage?

When applying for a mortgage, you will need to demonstrate to a lender that you have a substantial enough income to pay off the mortgage in the future. But how exactly can you reasonably prove your income? This article will detail the methods you can use to verify your income to a mortgage lender.

 Make Copies of your Records

The first step is to provide your lender with copies of your records that indicate your income. This means your two most recent pay stubs, your most recent checking account statement, your current savings account statement, and your federal income tax returns from the previous two years. This should provide your lender with enough information to accurately gauge your income and financial situations.

Debt and Loan Statements

Your income will not be the only factor that your lender will want to verify. Your mortgage lender will want to know about any debt obligations you have. As such, you should provide your lender with copies of your most recent credit card balance(s) as well as the most recent statements from any other outstanding loans you have, such as personal, auto, or student.

Provide Employer Information

Your lender may also request that you send them the information of your employer. This includes your employer’s name, your office or work address, and the phone number to the human resources department. Your lender might want to call to enquire about and verify how long you have worked there and what your salary is.

If you have Unverifiable Work

Many people who apply for mortgages have not been in steady employ in recent years. This can make getting a mortgage more difficult, but by no means impossible. If you have been in and out of work, have been working as a freelancer, or are self-employed, then you will have to take some extra measures to demonstrate your income. This usually means providing your lender with copies of more years’ tax returns, such as four or five. You may also want to provide bank statements going back several months or years.

Most Importantly, Be Honest

Remember, while it may be tempting to try to exaggerate your income in order to impress your prospective lender, this will ultimately only hurt you. Any competent and ethical lender doesn’t want to give you a mortgage you can’t repay and drown you in debt. Financial honesty and responsibility are always prudent.

source: northwoodmortgage.com

What Options do Brokers Offer that Banks Don’t?

Brokers versus Lenders

A broker’s job is not just to provide a mortgage; it is to find the best possible mortgage for a client’s situation among multiple lenders.

A good broker will shop around between many different banks and credit unions to find the best mortgage product for the client. This is a fundamentally different service from banks or other lenders.

While a broker’s purpose is to find the best mortgage for a client, a bank’s purpose is to sell the client on the bank’s products.

Advantages of Going through a Broker

Mortgages are complicated affairs with many hidden costs. Many first-time home buyers choose mortgages strictly based on rates. However, they end up getting fleeced by fees, pay restrictions, and refinance policies.

This is especially true for people with variable income or bad credit, who need more flexible mortgage options. A broker can help find a mortgage product specifically designed for any needs.

Best of all, a mortgage broker has a good understanding of value, and can find the best new offers from a variety of lenders. Every time a new mortgage product is rolled out by a lender, brokers across the country analyze and evaluate its value for their clients.

Additional Options through a Broker

Specifically, the options provided by a broker, as opposed to a bank, include:

    Choice between different lenders
    Negotiation of rates with lenders
    Neutral consultations and assessments

Rising Popularity of Brokers

The recession may be over, but capital is still tight. Bank rates have continued to increase for the past few years. CRBC and TD in particular have both hiked their rates across the board. This has made homeownership very difficult for many Canadians.

The good news is that many brokers can still find the deals among the rising rates.

Lesser-known monolines, or dedicated mortgage lenders, have tried to gain an advantage over the big banks by providing lower rates. It’s difficult for laypeople to find the right monoline for them, but brokers have the skills to find monoclines with both lower rates and appropriate terms.

The public is noticing the better mortgages obtained by brokers. Brokers now account for about one third of new mortgages. Among people who have already gone through the mortgage process with a bank, most choose to refinance using a mortgage broker.

source: northwoodmortgage.com

Is There an Age Limit to Qualify for a Mortgage?

Many people are under the impression that once you reach a certain age, you won’t be able to qualify for a mortgage. Although there is some logic tied to that myth, it doesn’t make it true.

 In fact, as long as you’re a legal adult (over the age of 18), it’s illegal for a mortgage lender to decline you based on your age—regardless of being 21, 60, or 99-years-old, you can’t be denied a mortgage because of your age.

But this isn’t to say that mortgage lenders are obligated to offer you a loan. Even if you’re in the prime of your life, you’ll have to prove to your lender that you can afford your mortgage and that the odds of you going into foreclosure are slim.

Here are the factors that lenders do look at:

Debt to Income Ratios
Most lenders expect that your total monthly debts will equal no more than 36 percent of your gross income. This includes credit card payments, student loans, and of course, your estimated mortgage payments.

For this reason, it’s most beneficial to pay off the rest of your debts before you apply for a mortgage. It will greatly increase your chances of securing the mortgage you need.

Income

Mortgage lenders also want your mortgage to take less than 28 percent of your monthly income. In other words, the more money you’re bringing in per month—the more likely you are to get approved for a mortgage loan.

This is where age can make a difference. Not necessarily in terms of the chances of you getting a loan, but rather, when it comes to what income you’re including.

For most people between the ages of 20-50, the majority of their monthly income will come from their employee salary. On the flipside, many people retire in their 50s and 60s, after which their income will mainly be comprised of pension payments, high interest savings incomes, investment incomes, and other sources.

Credit Rate
No matter how old you are, the most important part of your mortgage payment is going to be your credit score. As is the case with any loan, the higher your credit score, the more credit you’ll be able to secure. Most mortgage lenders consider anything above around 740 to be a good credit score.

If you’re currently falling below that, try to increase your score as much as possible before applying for a loan. You can do this buy using credit, and making regular large payments to bring down your debt at a favorable rate.

source: northwoodmortgage.com