Whether it’s pairing with an A-Lender, B-lenders or even a private lender, the difference between a good Beacon score and, quite frankly, a poor one can shape your ability to buy property, but, more than that, the terms under which you finance those purchases.
Bill MacDonald, a mortgage broker with INVIS, said that while applicants with less than a 600 beacon score may not be eligible for traditional financing, alternative lenders are becoming an increasingly solid option.
“Applicants with a rating less than 600 (even less than 650, or 630 depending on the lender) may not be eligible for financing with a traditional lender so alternative lenders would be considered on these occasions and, pending Beacon Score, the loan to value would be less given that a lower score means the down payment would be higher,” MacDonald told CREW.
While a borrower’s credit rating is not necessarily an indication of how large his/her real estate portfolio is, lenders generally view those scores as key to the underwriting process even for equity lending.
That rating is reflective of utilization of credit (balances vs limits); repayment history (on time vs chronically late) and how long they’ve had credit (20 years vs 1 year).
A credit rating of less than 650 would mostly likely means an investor will need a B-Lender, where they’ll face an interest rate of four to five per cent with a down payment of 20 to 25 per cent, according to Marcel Greaux, a mortgage broker with Mortgage Alliance.
A better credit rating, higher than 650, would cancel out the need for lender fees and, through access to default insurance, require a down payment as a low as five per cent, which frees up more capital to invest and gives the borrower more options with more access to capital.Below is a list of the terms and conditions borrowers face depending on their Beacon scores.
Less than 600 beacon score:
- Down payment of 20 to 25 per cent
- Interest rate up to five per cent
- One per cent broker fee
- Shorter term
- Higher debt servicing ratio
- Less property due to restriction of financing
More than 650 beacon score
- Down payment as low as five per cent
- One to two per cent interest rate
- Lower debt servicing ratio
- Up to five units serviced under credit
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Investors will increasingly have to move quickly to remove any blemishes on their credit reports in order to win financing for first, second or third purchases.