Even with a clean credit record, getting a mortgage in Canada is tough. The high housing prices and competitive market conditions make it difficult to land the home of our dreams. If your credit is less than perfect, you may wonder if it’s possible to enter the housing market.
At HW Advantage, we’re bad credit mortgage experts. We can help you find alternative lending solutions and guide you through the process of getting a mortgage with bad credit.
Bad Credit Mortgages: What You Need to Know
In Canada, it is possible to attain a bad credit mortgage. These loans are offered to individuals with low credit scores or histories of financial hardships and are typically not offered by the big banks. Specialized lenders who understand the challenges of purchasing a home with a poor credit score, like HW Advantage, are typically the best option.
It’s important to understand that bad credit mortgages often come with higher interest rates as the loan will be considered higher risk. This means that you will end up paying more over the life of the mortgage loan than is usual. While more expensive, these loans can help individuals in a tight spot.
By accepting a bad credit mortgage, borrowers can improve their credit score by keeping up with their payments. Eventually, the borrower may be eligible for a conventional mortgage loan. This makes bad credit mortgages beneficial in the long run.
What is a bad credit score?
When assessing your credit score, there are a few reasons why lenders might consider yours to be bad.
Low Credit Score
Credit scores generally range from 300 to 900, with a score of 680 usually being high enough to get approved for a typical mortgage. Your credit score can be low for many reasons, including:
- Failing to pay creditors on time
- Overusing your credit
- Signing up for new credit products frequently
To be eligible for mortgage default insurance (required with a down payment of less than 20%), you must have a minimum credit score of 680. If your score is below that threshold, you will likely have to seek a loan from a lender that offers bad credit mortgages.
Little or No Credit History
Sometimes, you may not have bad credit — you just have little to no credit history. It’s difficult for lenders to assess your credit risk without a history of paying back creditors.
Whether you don’t have a credit card, no line of credit, or are new to the country, lenders may deny you a loan because they want to see a demonstrated ability to pay back credit. Without that credit history, you are considered a high risk and will likely have to turn to alternative lenders.
A Shaky Credit Report
Credit scores can improve month over month, but credit reports often take much longer to settle. For example, bankruptcy can stay on your file for seven years. So, even if your credit score steadily improves, lenders may still see you as a risk.
How to Qualify for a Bad Credit Mortgage
Be Aware of Your Credit Score
It is important to check your credit score when preparing to purchase a home. This will give you a general idea of how lenders will perceive you and whether you will likely be approved for a mortgage.
If you discover your credit score is low, it’s a good idea to delve into your credit report to see what events in your past are dragging it down. You may be able to address some of these issues to improve your credit score.
Get Pre-Approved
Regardless of your credit score, getting pre-approved for a mortgage is essential before house hunting. A pre-approval lets you know how much money a lender may lend you. You also cannot make a firm offer on a home without acquiring a pre-approval.
A pre-approval also helps set realistic expectations for the type of home you can afford. It will inform you what kinds of properties you look at and the savings you will have to accrue.
Find a Broker Who Can Offer Bad Credit Mortgages
If you have bad credit, it’s unlikely that any major banks will approve you for a mortgage. But that doesn’t mean options don’t exist. Seeking out a professional mortgage broker, however, can be a serious help.
An experienced broker will have relationships with a variety of alternative lenders, helping you secure the best rate possible. A broker can help convince lenders that you are trustworthy despite bad credit. They can also help you plan to exit your bad credit mortgage for a standard one. They can suggest strategies to improve your credit so that you can secure a better rate when it comes time to renew your mortgage.
HW Advantage: Bad Credit Mortgage and More
If you have bad credit, HW Advantage can help. Our relationships with over 35 qualified lenders give us a variety of options to suit your specific needs. We pride ourselves on being able to provide flexible bad credit mortgages for our Burlington-area community.
Regardless of your financial situation, HW Advantage can help you land the house of your dreams. Ready to see how we can help you achieve your dreams? Contact us today or apply directly for a mortgage online.