Many Canadians experience credit issues, and there are many factors as to why a person may have bad credit. Maybe you lost a job, or there was a time in your life when you weren’t able to pay the bills. Whatever the reason, it does take some time to get your credit back on track.
You may already know how important it is to have good credit before you start looking for your dream home. Simply put, the higher your credit score, the better your interest rates will be.
That being said, if you do have a lower credit score, it is possible to get approved for a mortgage even if you don’t qualify with Canadian banks!
Our mortgage professionals are experts in alternative and private mortgages. They will help you get approved and get you one step closer to purchasing your dream home.
To help get you started, we have come up with some tips on how to get a mortgage with less than perfect credit.
1. Work on improving your credit score.
In Canada, a bad credit score is 574 or less. Banks and lenders will view you as a financial risk with this score or lower.
If you fall under this category, don’t worry. There are ways to increase your credit score over time:
Pay your bills on time.
Missing your monthly payments will impact your credit score. If you cannot pay your monthly bills, talk with your provider to set up a payment plan.
Don’t exceed your credit limit.
The key here is to try not to use more than 30% of your credit limit. This will show that you are a responsible spender.
Avoid applying for multiple credit cards.
In this case, less is more! Focus on one card and that payment only.
Keep your oldest account active.
The history of your credit matters. If you have multiple accounts, consider closing newer accounts and keeping your older account open.
2. The larger the down payment, the better!
The good news is lenders don’t only look at your credit score when going through your mortgage application. They consider other factors like down payment and income. The minimum down payment amount can be 5% of your home’s purchase price for Canadians.
However, your lender will ask you to put a higher down payment amount of around 20-25% for a person with bad credit. This will show that you are financially stable enough to afford the home and simultaneously reduces your monthly mortgage payments.
Also, a crucial point is that you won’t require mortgage default insurance, which is mandatory for anyone getting a mortgage with less than a 20% down payment.
3. Speak with a “Bad Credit” Mortgage Lender.
If you find yourself in the category of having a credit score under 574, most banks will not approve you for a mortgage loan.
If you don’t meet the bank’s requirements, there is another option and that’s Alternative Lending. This is where we have an impact! At The Mortgage Station, we can also offer you Private Mortgages. Our team of private mortgage specialists can help you find the right solution and answer all of your questions along the way.
4. Use a co-signer.
Having a second person on the mortgage is better than one when dealing with bad credit. Having a co-signer will allow you to achieve a better interest rate on your mortgage because they are now using their credit score and income as part of the mortgage application.
Please keep in mind that this is a substantial financial risk for the co-signer. They are now responsible for the payments of your mortgage. If you are unable to pay, the co-signer is now accountable. The co-signer will also be a part-owner of the house and have their name on the property title.
We have a great mortgage calculator to help you get your bearings on how much you can afford on a house.
Now that you know your budget and what you need to do to start your mortgage application, we are here to help. We have relationships with various lenders, and they want to hear your story!
Our mortgage experts at The Mortgage Station will guide you along the way and make sure you are taken care of. Our experience and customer service will make this process as seamless as possible.