Were You Rejected for a Home Equity Loan Despite a Good Credit Score?

Most people believe that a good credit score means instant approval when it comes to getting a home equity loan. This is a misconception. Each day, people with good credit score face rejection for a home equity loan. While it is true that a good credit score is key to getting a mortgage approval, this doesn’t necessarily apply to getting a home equity loan. This is because credit score is just one of the many indicators that lenders look into when determining whether an individual may be able to pay back a loan. Below are possible reasons why someone with a good credit score can get rejected for a home equity loan.

Look into Your Income to Debt Ratio

If you have a lot of debt and have a modest income, lenders may doubt your ability to afford paying for more loans. Lenders usually have minimum and maximum requirements when it comes to the ratio of debt and income with most lenders having a limit of between 43% and 49% debt to income ratio.

Having Low Income or Unreliable Income

If you have a highly variable and fluctuating income due to self-employment or work status, some lenders may be more careful about lending to you. Lenders consider each loan they approve as an investment. If there is a high probability that the loan won’t be paid back, it means that they might lose their investment. A solid proof of reliable income is what lenders want to see these days.

History of Foreclosure or Bankruptcy

Are you aware that your credit score will bear the marks of bankruptcy for up to 6 years since a bankruptcy was completed and that your records will be marred for 14 years if you happen to file for bankruptcy twice? A foreclosure or bankruptcy that happened a long time ago can have a huge impact on a home equity loan application at present time even when things are going well.

How to Get Approved for a Home Equity Loan

Do not be discouraged with the information shared above. It is still possible to get approved for a home equity loan even with declined previous applications. As soon as your finances improve or your credit score gets better, you can show that you are capable of paying bills in a timely manner. A credit score of around 680 will make most lenders more apt to lend to you but it won’t hurt to try because repeated checking and denial of application has no bearing on your actual credit score. You may reapply and recheck every few months until you get approved.

Are you worried about getting denied for a new application of a home equity loan due to a previous denial? Talk to us at Mortgage Central Canada! Our mortgage experts will assess your unique situation and assist you in getting a home equity loan approved. Contact us today to get approved as soon as possible!


Facts About Getting A Second Mortgage

A second mortgage is unlike a first mortgage or financing a mortgage. With a second mortgage, the lender will have to evaluate the equity built into the home before approval. Less significance is placed on other factors such as credit score and income source whether you will be getting a second mortgage from private lenders or from institutional lenders such as banks. Just note that some banks may still have stricter qualifications when it comes to having regular employment and a high credit score.

Applying for a Second Mortgage

At current time, debt consolidation is the most popular reason for people who are applying for a second mortgage. Another popular reason is to pay for home renovations to improve their property’s value. Some use a second mortgage to pay for higher education or to serve as emergency fund especially during trying times. The beauty of a second mortgage is that lenders typically do not need to know what the funds will be used for provided that their loan requirements are met by the homeowner.

How Much Does A Second Mortgage Cost?

Homeowners in Canada can access as much as 80-90% of their home equity via a second mortgage. That amount of money can ease financial burdens and change lives if used wisely. For a lot of people, a second mortgage is a much smarter choice than other loans considering that it only has an interest of 5-15% whereas other loans may charge as much as 30% in interest. Although 5-15% interest may still sound a lot for many people, it is still a savings of more than 50% compared to other loan products. That interest rate is further justified if you’ll note that in case of any problems with payments, the primary mortgage will get the first priority when it comes to getting paid. A lender for a second mortgage has to charge a slightly higher interest than a primary mortgage to cover the cost of risks for them.

How to Pay for a Second Mortgage?

As a borrower, you are supposed to pay a monthly payment that covers the interest and pay according to the terms that you agreed with. It is possible to have prepayment options and this is best discussed with your lender. Note that after you’ve reached the term of your loan, there may be an option to renew for another year. If you do not wish to go this route, then simply follow the agreed-on payment terms.

Facts About Second Mortgages

Below is a list of information that you have to know when applying for a second mortgage:

  • You may be able to access as much as 80-90% of your home equity
  • Different lenders have their own set of requirements. If you were turned down by a bank or a financial institution, it is still possible to get a second mortgage from a private lender
  • Most second mortgages offer 1-year terms. Prior to the payment term, the borrower is usually charged for the interest only

Are you thinking of applying for a second mortgage? Contact us and we will make sure to get back to you as soon as possible. We will be happy to answer your questions and assist you in assessing what mortgage loan type is right for your needs.

Should You Apply for a Home Equity Loan or Is It Better to Refinance Your Mortgage?

Canadian homeowners have plenty of ways to access home equity although it can be tricky to choose which option is the best for their specific situation. It is not a secret that some individuals may face more difficulties or experience more limitations such as in the case of freelancers and other self-employed individuals. In general, people with non-regular income sources will have more difficulty securing mortgages and other loans.

Challenging Choices for Borrowers

The Canadian Government introduced the mortgage ‘stress test’ just a year ago and Canadians are having a more challenging time borrowing money with good interest rates since it was implemented. The mortgage stress test made things more favourable for lenders by increasing profits and decreasing risks but since borrowers have been having a harder time, they’ve been looking at more financial options to help them manage existing debt. This is a huge factor as to why the different types of home equity loans are becoming more popular although some people have voiced that that the many ways to access home equity is still a bit confusing for them and they aren’t sure which to apply for. The different home equity loans do have their pros and cons and what may work for one family may create more problems for another. This is why it is important to fully assess your specific situation with Canadian mortgage professionals before deciding which option to apply for to ensure that your financial goals will be met and so that you can avoid possible pitfalls.

Why Consult a Mortgage Professional for Your Questions?

A mortgage professional is a person who is abreast with the best and latest practices when it comes to mortgages and using your home equity. They can explain things to you in a manner that you will understand better. They will work with you to guide in making ethical financial decisions as a homeowner so that you can achieve your long-term financial goals faster and with more efficiency. Be prepared to answer a lot of questions because your answers to their questions is their way of assessing your financial needs for them to pinpoint the best options for you. Typical questions may be about your time frame for borrowing, how much you want to borrow, what are the terms for your existing loans or mortgage, and qualification criteria for loans and mortgages.

Refinance Your Mortgage or Get a Home Equity Loan?

Your truthful answer to the possible questions will determine if your situation will benefit more from a home equity loan or from a mortgage refinance. Note that each detail you provide counts in creating a solid approach that helps you get the cash you need now using a way that you will be capable of paying off later. This way, you can get out of debt faster.

Do you need a mortgage professional to help you decide between a home equity loan and a mortgage refinance? Talk to us at Mortgage Central Canada and we will answer the questions you have to empower you with the information you need. Discuss your borrowing options with us today!