Subprime mortgage financing in Toronto is the type of financing you may look for if you have bruised credit or difficulty proving income. Subprime financing is usually offered by finance companies and private lenders.
When a consumer has struggled with credit or cannot prove their income, it makes finding mortgage financing in Toronto more challenging. Most banks and prime lenders have lending criteria that includes a minimum credit score (usually 680 is the minimum), low debt service ratios (the proportion of your monthly payments to housing and debt in proportion to your income) and require that you can prove your income by way of a paystub and if no paystub is present, your tax returns.
This can present a challenge for self-employed, especially because most banks will only consider the net annual income you declared to the Canada Revenue Agency and will not consider your gross business income or expenses.
Where mortgage financing is concerned, there are two primary differences between prime and subprime mortgage financing in Toronto. The first is mortgage interest rate – a prime rate mortgage is often lower than a subprime mortgage interest rate. The second is the amount of equity you will need to have in your home to qualify for a mortgage. Lenders who offer prime mortgages will often loan up to 9% of your home’s value on refinance, whereas a subprime mortgage lender will often want to lend less than 80% of the value of your home.
A subprime mortgage is often also referred to as an equity only mortgage. The private mortgage lender is not lending to you based on your credit or income but rather they are lending to you based on the security you have to offer. The security being the amount of equity you have in your home.
If you find a good private mortgage lender, you can still obtain competitive mortgage financing which can help you resolve debt that has become out of control, or bridge a much needed gap in the event you are selling a home, buying a home or have a home renovation that has gone over budget. A relationship with a good private mortgage lender can provide you with the ability to obtain financing when you need it most.
Some mortgage brokers offer private mortgage financing. It is important to ask if they themselves are loaning you the money or if they are obtaining the money from a private individual that is outside of their professional network. Working with a Mortgage Broker who also loans their own money (or lender within their professional network) is your best choice. The reason why is because they will have more control over what happens when the mortgage is funded or is subsequently up for renewal.
Finding a good private mortgage lender will be the result of asking lots of questions. Since the recession in 2008, private mortgage financing can be harder to come by but is still available if you have the right connections.