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The Canadian housing market can be challenging to break into, especially with a low credit rating. However, despite what you may have heard, bad credit mortgages exist and are easier to get than you think.

At the HW Advantage, we’re bad credit mortgage experts. We are a Burlington-based mortgage broker who can help you find alternative lending solutions and get a mortgage with bad credit. In this article, we’ll dispel some myths surrounding bad credit mortgages.

What Qualifies as a Bad Credit Score?

When shopping for a mortgage, your credit score will significantly impact what type of loan you can be approved for. There are a few reasons why lenders may consider your credit score poor.

Low Credit Score

Credit scores generally range from 300 to 900, with a score of 650 usually being high enough to get approved for a conventional bank mortgage. Your credit score can be low for many reasons, including:

  • Failing to pay creditors on time
  • High utilization of your credit
  • Signing up for new credit products frequently

Little or No Credit History

Sometimes, having little to no credit history can be just as hampering as bad credit. Why? Because it’s difficult for lenders to assess your credit risk without a history to look back on.

Lenders may deny you a loan because they want a demonstrated ability to repay loans. If you don’t have a credit card or line of credit, you may not have enough credit history for traditional lenders to feel comfortable loaning you money.

A Shaky Credit Report

Credit scores can improve quickly month over month, but credit histories take much longer to improve. For example, a bankruptcy stays on your file for seven years. So, even if your credit score steadily improves, lenders may still see you as a risk without a re-established strong credit report. A good mortgage broker can help you reestablish your credit.

Myth: Bad Credit Mortgages are Predatory

One of the biggest misconceptions about bad credit mortgages is that they are shady and predatory. While it’s true that some lenders may engage in unethical practices, reputable providers prioritize fair terms and transparency. Bad credit mortgages often carry higher interest fees due to the inherent risk, but a trusted lender and mortgage broker will openly discuss all these fees and will properly disclose all the fine details.

When looking for a bad credit mortgage, look for a lender registered with the Financial Consumer Agency of Canada (FCAC). These providers will be transparent and trustworthy.

Myth: Applying for a Bad Credit Mortgage Damages Current Credit Scores

Another common misconception that we often hear is that by simply applying for a bad credit mortgage, it will hurt your current credit score. This is not the case.

The primary focus of lenders is on repayment capabilities and high credit utilization. When a mortgage broker or lender “pulls a new credit bureau” the credit score may move a few points but this won’t be the difference in an approval or not. Lenders want to see how responsible you are for making payments on time and want to see that not all active credit accounts are maxed out.

Myth: Bad Credit Mortgages Require Collateral

Beware of lenders requiring you to put your vehicle or anything up as collateral to get approved for a bad credit mortgage. A trusted bad credit mortgage lender will never ask you for collateral. While collateral may be used to improve lending terms in some instances, it should never be mandatory.

Myth: Bad Credit Mortgage Interest Rates are Sky-High

While bad credit mortgage rates are typically higher than traditional mortgages, they are not exorbitant. Lenders are taking more of a risk by offering a bad credit mortgage, which is why interest rates are higher—but not as high as you may have heard.

Typically, a bad credit mortgage is 1-3% more expensive than traditional loans. Lenders want a return on their investment, and if they charge too high a rate, borrowers may not be able to pay it back.

How to Qualify for a Bad Credit Mortgage

Be Aware of Your Credit Score

When preparing to purchase a new home, it’s important to check your credit score beforehand. This will give you a general idea of how much you will be approved for and also give you some time to improve your credit score if need be.

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 you’ll qualify for, but also gives you a better understanding of the rate and corresponding payment obligation to ensure it will fit your budget.

Find a Broker Who Can Offer Bad Credit Mortgages

Major banks are not likely to offer bad credit mortgages. However, a professional mortgage broker can be a huge help. They will have relationships with a variety of lenders, and can help convince them that you are trustworthy despite bad credit. Additionally, a great mortgage broker will strategize an exit strategy with you. A plan to get your mortgage approved, but then also to work towards improving your credit and ultimately switching your mortgage over to a traditional bank with the best rates available.

HW Advantage Bad Credit Mortgage Experts

If you have bad credit and are looking to purchase a home, we can help. We have relationships with over 35 qualified lenders at HW Advantage, giving us various options to find you the best rates possible. We pride ourselves on providing flexible mortgage options for communities in the Burlington and Oakville area.

HW Advantage can help you land the home of your dreams. Ready to see how we can help? Contact us today or apply directly for a mortgage online.

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