If you’re thinking about buying a home, but your credit history is far from perfect, don’t despair. Your bank will probably refuse to lend you the money you need if you have a bad credit score, but that doesn’t mean it will be impossible for you to get a mortgage.
In Canada, credit scores range from 300 to 900. Those who have a credit score above 680 should have no problem getting a mortgage to buy a house, but if your score is below 600, things will be more difficult for you.
When you have a poor credit score, traditional lenders see you as a risk. If they still agree to lend you some money, they will probably charge you a high rate of interest that could end up making your whole situation even more difficult.
Learn about how to get a mortgage with bad credit:
1. Review your credit report
To get a mortgage with bad credit, make sure you review your credit report first and foremost. If you know your credit is bad, you certainly already know what your credit score is. If you don’t, you should order your credit report from either Equifax, or TransUnion.
When you receive your credit report, which will contain your credit score as well as your full credit history, start by reviewing it. If you notice any errors in your credit report, be sure to report them so they can get corrected.
A tiny mistake could prevent you from getting a better credit score, which is why you should start by taking a close look at your credit history.
2. Work on improving your credit score
If there are no mistakes on your credit report, you should work on improving your credit score before trying to apply for a mortgage. A better credit score should give you access to lower mortgage rates, so it’s worth a try.
To improve your credit score, make sure you are paying all your bills on time. If you are struggling to pay your monthly bills, getting a mortgage isn’t a good idea to begin with, since you are sure to also struggle with your mortgage payments.
You should also make sure you are staying under your available credit limit, and that you are not applying for many credit cards all at once.
3. Save money so you can make a bigger down payment
When you have bad credit, some lenders might agree to lending you money as long as you are able to make a large down payment.
In Canada, the minimum down payment you can make on a house is 5%. However, if you want to show lenders that you are financially stable enough to get a mortgage, you should consider a down payment of at least 20%.
Saving enough money for that down payment could take some time, but it will make it easier and less costly for you to get approved for your mortgage.
4. Consider getting a co-signer
A co-signer is someone with a great credit score who guarantees that they will make your monthly mortgage payments if ever you can’t make them yourself. If this is possible in your situation, getting a co-signer could allow you to get better mortgage rates.
However, before you ask a parent or a friend to be your co-signer, make sure you both fully understand that this would imply. If ever you can’t make your payments, your co-signer will become responsible for paying your mortgage, and this could put a strain on your relationship.
5. Look for a bad credit mortgage lender
Some lenders specialise in offering loans to people who have bad credit scores. If you look for a bad credit mortgage lender, you are sure to find a few lenders that will be ready to offer you a mortgage.
However, keep in mind that if you get your mortgage from a bad credit mortgage lender, they could charge you some extra fees that will increase the amount you will have to repay them.
6. Consider getting in touch with a mortgage broker
Instead of searching for lenders who might approve your mortgage application, you could work with a mortgage broker.
A mortgage broker will know which lenders could get you a mortgage despite your low credit score, and they will be able to recommend you the best offer. They might even be able to help you improve your credit score, so getting a loan will be easier in the future.
7. Don’t give up and keep trying
Getting a mortgage when you have bad credit is not impossible, but it can be complicated. If you are determined to try and get a mortgage right now instead of waiting until you can improve your credit score, your application might get refused by many lenders before you can find one that will be ready to lend you the money you need.
Don’t give up, and keep trying different solutions until you can get approved for your mortgage.