The real estate market in Canada has skyrocketed in recent years. If you are thinking about a profitable investment, a lot of people will advise investing in Canadian real estate. Readers can even come across hundreds of blog posts and articles, on how the government of Canada has simplified the process of buying properties with mortgages.
However, if you are not aware of the challenges, let us tell you that buying properties in Canada can be troublesome if you have a bad credit score for a mortgage. In this article, we will discuss how a first time home buyer can qualify for a mortgage with bad credit. If you are facing obstacles in purchasing a residential or investment property, here’s a blog for you.
Why Is Credit Important?
Credit plays a vital role when it comes to private mortgage and loans. The credit can help individuals to avail of numerous financial benefits, including best interest rates in the market. A good credit score indicates affordability and is low-risk in realty.
On the other hand, a bad credit mortgage is risky for both lenders and borrowers, and many mortgage brokers avoid borrowers with bad credit scores. Lenders are required to make a decision, and they finalize after taking a look at the credit score, debt history, sizable down payment, income and employment history, credit report, and, if they find it suitable, the borrower gets the money.
Can You Get A Mortgage With Bad Credit Score?
If you are thinking to get approved for mortgages from the conventional lenders in Canada, like top-rated banks, you may not qualify with the approval requirements. Instead, you can check trust companies, credit unions and subprime lenders to avail of bad credit mortgage.
In general, people with bad credit scores, are risky for conventional lenders, prefer using these sources for borrowing, and they are likely to pay a higher interest rate than the national average. Readers can look out for these sources if they are in search of a lender to finance a purchase, and it will be helpful for sure.
In the next section, we will highlight several ways to get a private mortgage despite having bad credit, and readers should not miss it.
Tips To Qualify for Mortgage with Bad Credit
A credit score between 620 and 680 is minimal requirements for qualifying mortgages, but there are other factors too. If you are thinking getting a green signal for a mortgage will be almost impossible with bad credit score, you are wrong; it is possible to get approved for mortgages with bad credit scores, and here are some tips for the same.
Don’t Be Impatient
Patience is a virtue, and losing it may negatively impact the chances of getting approval from the lenders. The credit score can improve with time, and you need to follow the right strategy for the same.
If you are planning for approval from mortgages from traditional financial institutions, it is unlike to get approved until a year or two. Hence, it would be best if you consider waiting for the right time when your finance will be improved, and the chances will be higher to get approved.
Employment
Lenders will take a look at your income, debt history, credit report lastly your employment before considering your request. Job is an indication that you have a stable income, and it can help you to get approved for the same.
In case there are no sources of stable income, getting approval will be more challenging for individuals. Lacking a steady source of income is considered to be risky for mortgage brokers, and therefore, employment can help to get approved for the mortgage.
Private Lenders
Opting private lenders for a mortgage will be a good alternative if you are looking for approval. Private mortgage brokers often deal with individuals who are considered to be risky, and if you cannot get the support from leading institutions, you can try it as the last hope. In case individuals opt for a private lender, they must be willing to pay higher interest rates than usual.
For example, instead of 5% down payment with a 4-5% interest rate, you may have to make a 20% down payment along with an interest rate of 10-15% or more. You can find hundreds of private lenders across Canada, and if you can’t get approved elsewhere, you can indeed find a private lender who will be ready to finance your purchase with their terms and conditions.
Make Big Down Payment
We advise readers to save for making a reasonable down payment, and it can increase the chance of getting approved for mortgages. Since the bad credit score indicates risk, by paying a significant down payment, you show there are lesser financial risks, and it may help to qualify for mortgages. Besides, hefty down payment at a time means you will take lesser time to repay the amount.
Improving the Credit Score
The credit score can be improved, and you can put efforts for the same. Good credit score will not only ensure approval, but it will also help to get the best financial features. If you are wondering how to improve the credit scores, here are some tricks that will help individuals in the same.
Do you pay monthly electricity bills on time? If your answer is no, there’s a possibility that your credit score might get affected due to this. We advise reads to pay the bills on time and in full so that your credit score improves over time.
In general mortgage brokers and lenders check income, current debts, general expenses, amortization period, property taxes, mortgage payments, lines of credit, credit card payments, car payments etc. If you have a large number of unclear debts, it may turn out to be an obstruction.
When you don’t have substantial unpaid debts, your credit score is likely to be improved, and you should not forget it. A lot of people have no control over their expenditures, and it is not a good sign. The lender will take a look at the credit history, and it will be better if you don’t use more than 30% of the limit.
Applying for too much new credit is also a bad sign, and you should not do it in a short span. It creates a wrong impression and affects your credit score. Lastly, you can generate credit reports online, and if you have doubts regarding it, you can review the credit report to check whether it meets the mortgage approval criteria.
Experts advise people to use their oldest account to get approval for the mortgages, and the trick has helped many people so far. Apart from this, you can check the criteria of a co-signed mortgage, and if it suits your requirements, you can opt for it. A co-signed mortgage will include a third party guarantor, and it is considerably less risky for the lenders and mortgage brokers.
Choosing the Right Organization
Rates of interest and other terms can vary on the lenders, and one needs to look out for the right lenders before making a decision. Choosing a wrong lender means you will have to pay higher interest, and you may not get features that are generally available. Take your time to research the best places to get approval for mortgages, and it will be helpful.
The tips mentioned above are some of the most useful information to qualify for mortgages with bad credit scores, and we hope it will help individuals to finance their investments. You can also consult financial experts or trusted mortgage brokers for satisfactory solutions. You can try these tips and share feedbacks to help other readers.