Do you have a bad credit rating due to financial problems you have had in the past?
Perhaps you’ve gone through a bad divorce or owned a failed small business that resulted in bankruptcy or a consumer proposal.
You may have lost your job and found yourself in default on your loans and credit cards. There are many circumstances that could have caused you to have bad credit.
This doesn’t necessarily mean that getting a mortgage to buy a home is out of the question, and whatever the circumstances, speaking with a mortgage broker could help you in your journey to owning a home.
Making sure you take the right steps whether you have bad credit or even no credit is very important. There are some options available to you, but they will come at a cost.
Here’s a guide to what we’ll look at to determine the options that might be available for mortgage financing.
Check your credit score
You can do this yourself at www.equifax.ca or www.transunion.ca or if you contact a mortgage broker they can check it for free. Your credit score will be between 300 and 900.
If your credit score is below 600, most major bank lenders in Canada will not consider you for mortgage financing and you will look for another mortgage lender. If you’ve recently filed for bankruptcy or been the subject of a consumer proposal, your options may include private lenders.
Save for a larger down payment
If you have good credit, you can buy a home with as little as 5% down, but with credit problems you need to be prepared to provide more equity. Lenders are going to require somewhere between a 20 to 25 percent down payment.
There will be costs
Be prepared to pay fees to take out a mortgage with an alternative or private lender in addition to standard closing costs.
You won’t qualify for the best rates currently advertised, but if you make all of your payments on time and work to repair your credit, you will likely qualify for better rates upon renewal.
Income and employment
A lender will look at your employment history and income to make sure you are able to make your payments. Is your income confirmable? (Declared on your income tax returns with your taxes paid up to date). This is particularly important for the independent candidate. Do you have job stability?
Having high balances on unsecured credit cards or a high car payment could also affect a mortgage decision. Alternative lenders will want to make sure you can meet your current obligations to avoid the risk of future default on a mortgage payment.
The property you buy
This is a very important factor for private lenders who lend to customers with bad credit. They will want to have a full appraisal done on the property to make sure it is marketable and worth the investment they are making in the mortgage.
It may be possible to get a mortgage even with bad credit, but be prepared to pay higher rates and fees, and have a larger down payment. There are options available which can be determined after a full consideration of the circumstances which could include a co-signer until you have restored your credit.
This is a great time of year to do a full review if you are thinking about buying a home early next year.
Please request a free assessment with recommendations, including a credit repair program.