How to Get a Mortgage with Bad Credit?

November 3, 2019 By: excelagents0 comments

What is Bad Credit?

Bad credit refers to a company’s or individual’s low credit score that can be a result of not paying bills on time. If you are not paying bills on time, you’ll be considered untrustworthy to make payments in the future. Typically people with scores under 600 are considered to have bad credit as major banks and prime lenders find them riskier to lend to.

What are Bad Credit Mortgages?

They are mortgages for people who need a loan to purchase their new home but have a poor credit score and usually get rejected by major banks. While you may not be able to secure a loan with a prime lender, there are a lot of institutional lenders and private lenders that focus on providing mortgage solutions to people with low and/or bad credit scores.

Can You Get a Mortgage with Bad Credit?

Life happens, you can lose a job, or some emergencies or health concerns got in your way to pay bills, which can result in a low credit score. Now you can try to up your credit score, but if you can’t make it, you can still get approved for a mortgage with bad credit score, although you will be considered riskier due to your bad payment history which will result in relatively higher interest rates compared to major banks and prime lenders.

Getting a Mortgage with Bad Credit:

Here are some tips to follow which can help you qualify for a mortgage:

• You can make a larger down payment to reduce the risk for the lender, so they are more willing to finance the rest of your mortgage.
• Ensure that you are making consistent payments towards your debts and have a low loan utilization ratio – you should aim to stay borrow up to a maximum of 60% of the total credit facilities that you have available at your disposal.
• Have a stable and dependable source of income that lenders can use to estimate your total income, lenders typically ask for a copy of your Notice of Assessment (NOA).
• Keep an eye on your credit score by monitoring it and ensure that you are’t missing any bill payments as it can take up to 36 months to remove missed payments from your credit report. There are a handful of free solutions that you can use to pull your credit report in Canada, one of them is Borrowell which has a partnership with Equifax to provide Canadians with free credit reports. If your score is below 600, you are considered to have bad credit.
• One of the most important factors and criteria for being approved for a bad credit mortgage by a private lender is that your property needs to be rated average-to-good through the appraisal process.
• Have some cash reserved for emergencies that will make the lender comfortable.
• If you have any missed payments, ensure that your payment history for the past 2 years is picture perfect, so you’d be able to verify to your lender that you are making amends now.
• Be honest with your lender. Explain your circumstances and make sure they trust you by providing documents.

How do Lenders Approve Bad Credit Mortgages?

Some high-end lenders may reject your request for a mortgage, but some lenders will take the risk of providing you loan by focusing on equity in the property instead of the poor credit score. Especially if you are refinancing, lenders will allow you to increase your total mortgage up to a maximum loan to value of 85%. They will reduce their risk by focusing on some other factors which you can offer to secure the loan, such as:

• If you have a secure job and sufficient income, you’d be more likely to get approved even with a bad credit score.
• Making a larger deposit will minimize risk and untrustworthiness.
• Lenders consider your age, before approving your loan.
• The type of property can also affect their decision to approve your loan.

Is It Possible to Get a Mortgage with Bad Credit in Canada?

It might be a bit difficult to get a mortgage from banks in Canada if you have a bad credit score, but many private lenders specialize in offering mortgages to people or companies with a low credit score. If you meet their eligibility criteria, you are good to go. Although lenders change their policies very often and they often make their decision based on cause and severity of bad credit score, it is still possible to secure a mortgage. What is important is that you have a good team advising you based on your situation.

The Bottom Line:

Someone with a poor credit history often gets rejected by banks, but there are alternate lenders who offer loans to high-risk borrowers by providing them with different repayment terms. Each situation is treated uniquely based on the individuals circumstances, so it is very important that you work with the right mortgage broker that will help negotiate the best rate for you. All in all, if you have a substantial down payment, proof of income and regular employment, you can get a bad credit mortgage.