How To Get A Mortgage With Bad Credit

How to Get a Mortgage With Bad Credit

More and more Canadians want to know how to get a mortgage with bad credit. And understandably so, because rectifying your credit rating to qualify for a mortgage can be an uphill battle. 

Most people will enter the market to purchase a home because they understand the investment potential associated with buying property. However, if not planned properly, this investment could turn into one of the biggest financial challenges you have ever faced. 

One thing you can be sure of: you must have your facts and figures in good order to apply for a mortgage.

In this article, we will explore how to get a mortgage with bad credit. We will include the steps you need to take to better your credit score and qualify for application.

We will give you a straightforward guide to making your dream come true. You may have to jump through a few more hoops than someone with a flawless financial record, but it is achievable.

Observe the following tried and tested steps we have set out below, and you will discover how to get a mortgage with bad credit.

What is a credit score?

You are not the only one asking how to get a mortgage with bad credit. It is a question that many Canadians would like to have answered. Before you can answer this question, however, you need to obtain and examine your credit scorecard to ensure that you succeed in your quest to become a homeowner. 

A credit score is a rating indicating how well you have maintained your credit in the past. This rating is measured on a scale and indicates whether you are responsible and reliable when it comes to your finances.

Life throws all sorts of challenges our way, some of which could impact your finances negatively. Whatever the reason, these factors can negatively affect your ability to make regular account payments, which will affect your credit score.

Having an excellent credit rating is ideal, but people with lower credit scores could still qualify for a mortgage. 

Mortgage lenders and financial institutions need to tick several boxes when assessing your application. You may be eager to dive in, but having a better understanding of how to get a mortgage with bad credit will be to your benefit.

How do I find out my credit score?

Before moving forward, you should determine whether your current credit score qualifies you to apply for a loan. Improving your credit score will be your first line of defense when tackling the question of how to get a mortgage with bad credit.

Canadian credit bureaus assess your credit rating on a scale from 300 to 900. A credit score of 900 is considered excellent, whereas a credit score of 300 would be poor.

Your local credit bureau, such as TransUnion, will be able to provide you with your credit history and current credit score.

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Why is my credit score important?

Lenders need to see how you have handled your available credit with other providers in the past. The better your understanding of your credit rating, the closer you will be to determining how to get a mortgage with bad credit.

Your credit score is important because a higher score shows lenders that you can be relied upon to make your debt repayments in full and on time. A better score is a big plus in any bank or mortgage lender’s books. Lenders need to be convinced of your ability to make good on your loan.

When investigating how to get a mortgage with bad credit, one thing you should know is that some lenders require higher credit scores than others. Remember, too, that once you have obtained a mortgage loan you will need to make sure you can pay it back.

What credit score do I need to qualify for a mortgage?

According to information provided by the Canadian Government website, your credit score is considered good if it is 680 or more. Scores between 600 and 679 are viewed as fair, whereas a score of 600 or below is regarded as poor. 

Subprime lenders (also known as second-chance lenders), such as trust companies, could assist those with a score below 600. If you have a credit score of between 550 and 600, you may qualify for a mortgage from a subprime lender.

Opting for a high-risk credit loan maybe your best option if you are examining how to get a mortgage with bad credit. Despite having a low credit score, you may still find that a private lender will be willing to consider giving you a mortgage loan. But, because the loan would be considered high risk, you may incur additional costs.

Irrespective, mortgage lenders must consider your credit history, the amount of debt you currently have, and whether you can make payments on time. 

If you have never opened a line of credit before, and thus have no credit score yet, your current financial situation must be assessed to determine any potential risk. 

Bear in mind that your financial records will be put under a microscope, and your employment history will be examined closely too.  

Even if you are successfully self-employed, be aware that prime lenders are more open to borrowers with a stable source of confirmable income.

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How do I improve my credit score?

To improve your credit score, keep accounts open for as long as possible, make payments on time, and don’t exceed your credit limit.

Of course, a high score represents the best scenario for your future repayment rates. But the following will help you improve your credit score while determining how to get a mortgage with bad credit.

Pay all your bills by the due date

Make sure you never miss a monthly repayment on any outstanding debts. 

Failure to do so could be detrimental to your credit score and result in the credit bureau flagging you as an unreliable borrower. 

Do not simply ignore a missed repayment. If you cannot make a repayment in full, get in touch with your provider and work out an acceptable payment agreement.

Do not exceed your credit limit

It is a good idea not to use more than 30% on all your lines of credit. Spending in this way shows loan agencies that you take your responsibilities seriously and can live within your means.

Do not shop around for extra credit

Restrain yourself from applying for additional credit cards. Opening additional lines of credit would raise a red flag to future potential lenders that you may be getting desperate.

Maintain your oldest account

Your credit history counts for a lot, so do not simply cancel an old credit card. Even if you do not use it, you will enhance your credit history by maintaining your oldest credit card.

Remain patient.

Rebuilding your credit rating is paramount, so being patient as you navigate the process is important.

It is especially critical if you have had a consumer proposal or declared bankruptcy at some point. Improving your credit could take some time, dependent on your situation. The more time you allow to rebuild, the stronger your recovery will be. 

These simple steps will see your financial future brightening. And, by exercising patience, you will learn how to get a mortgage with bad credit and realize your dream.

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Additional advice on how to get a mortgage with bad credit

Make a larger mortgage down payment

If you are trying to determine how to get a mortgage with bad credit, the solution is within your reach if you have some capital to work with.

If your credit score is poor, but have found a lender willing to offer you a mortgage, you will likely be 

In for a down payment of a minimum of 20% of the property’s value, up front.

The good news is that if you can make a larger down payment, you will have more home equity. One of the benefits of increasing the down payment amount is that you will own the lender less. You can then choose to make your repayments over a shorter period, or you could pay less per month over a longer period. You may even be offered a better mortgage rate this way.

That said, if you are in a hurry to buy a home but do not yet qualify for a mortgage through a prime lender, there is an alternative option. You could consider applying for a mortgage through a more loosely regulated organization, such as a trust or private loan provider. In this case, you may not be privy to all the benefits you get with a prime loan, but you are more likely to succeed.

Determine the value of the property

Considering how to get a mortgage with bad credit can become a complex issue for borrowers looking to work with subprime or private lenders. 

There are higher inherent risks when having your property appraised and ranked according to its true value.

If a private lender is skeptical of your ability to pay back the loan, they will be keen to assess the value of the property. Knowing its value will help to reassure them that the property is worth the investment they are making, should you default on your payments to them.

Get someone to co-sign the mortgage

Should a loan provider be uncomfortable providing you with a mortgage, due to your poor credit history, you could opt to bring in a co-signer. 

Lenders may be more inclined to entertain your mortgage application if someone with a good credit history signs the mortgage agreement with you. They would, essentially, be signing as surety to cover your installments should you be unable to pay. 

It is important to understand, though, that if you are unable to make regular payments, your co-signer will be held liable for the outstanding amount. Before moving forward with a co-signee, make sure that you have both discussed and understood the risks involved. 

In most cases, the co-signee on a mortgage agreement would be a parent, family member, or friend.

In conclusion

Securing a mortgage with bad credit comes with higher interest rates and a down payment of at least 20%. You also run the risk of your home being repossessed if you slip up on your payments. 

Improved mortgage terms should always be your goal, and consulting a mortgage broker could be the best way to go.   

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FAQs aboutHow To Get A Mortgage With Bad Credit

What is the mortgage application process?

The mortgage application starts with gathering important documents, compare mortgage loans, submitting an application to a lender and waiting for approval.

What documents do I need for mortgage application??

  • Proof of income
  • Statements from banks
  • A list of your current assets and liabilities
  • ID such as license or passport

What is a credit score?

A credit score is a rating that shows how well you manage your credit in the past. It shows whether you are reliable and responsible when it comes to handling your money.

How do I find out my credit score?

If you're a Canadian resident, you should be able to access your credit information through TransUnion.

What credit score do I need to qualify for a mortgage?

Based on the score on the Canadian Government website, your credit score should be 680 or more.


October 12, 2022
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