Getting approved for a mortgage with bad credit
A lot of Canadians experience credit issues when faced with problems. Whether it’s a job loss, health issues or just a lack of credit, it can take a while to get back on the right track. For many people, they might have to delay purchasing a home. Waiting may not work for those who are ready to purchase.
The good news is there are some options available to help them. but these don’t always come cheap. So, how can you get approved for a mortgage with bad credit?
Look for a Bad Credit Mortgage Lender
You should be able to get a mortgage loan from one of the big banks, commonly known as “A lenders” if you have a credit score in the 600-700 range or above. Most of Canada’s big banks will not approve you for a mortgage loan if you have a credit score below 600. You’ll have to look for a “B lender” or “subprime lender” instead. These financial institutions, including trust companies, work pretty much exclusively with those who don’t have ideal credit scores. And if you’ve been bankrupt or had a consumer proposal within the last two years, you may even have to work with a private mortgage lender. If you’re working with a mortgage broker, they should get you in touch with a lender that will work with you.
Allot a Larger Down Payment
When considering your mortgage application, lenders take a look at a lot of things. These include your credit score, income, and your levels of debt. You can get a mortgage loan from most lenders with just a 5% down payment If you have good credit because you’re seen as a low risk. If you have bad credit, most will ask for a much larger down payment, around 20-25% because the lender is taking on a higher risk by loaning you money. The good thing with this is that a bigger down payment may give you a bit more leverage when it comes to negotiating a mortgage rate because you are less risky than those who have very little equity in their home.
Be Prepared to Pay Additional Fees
You’ll also need to have some more cash set aside for additional fees aside from having to allot a larger down payment. First, for processing a bad credit application, lenders can charge up to 1% of the mortgage loan value. Also, your broker may also charge you an additional 1% because banks typically don’t pay brokers for giving them clients with credit issues. To illustrate, 2% on a $469,500 home (the national average according to the Canadian Real Estate Association) is $9,390. Add a 20% down payment ($469,500 x 0.20 = $93,900) and you should have $103,290 cash before you could make the purchase.
Don’t Count on Getting the Best Mortgage Rates
Your credit score has a direct impact on which lender you can work with, along with the mortgage rate you can get. You can work with the big banks and access the best mortgage rates if you have good credit. You’ll have to work a “B lender” or private lender if you have less than outstanding credit and be subject to higher interest rates. Keep in mind that your lender looks at your credit score and report to know how risky it would be lending money to you. Pay all of your monthly mortgage dues on time and do other things to boost your credit score if you want to be able to access a lower mortgage rate at your time of renewal. You should also use credit cards responsibly and pay off any other debts you may have.
It doesn’t have to be complicated to get a mortgage with bad credit. Hiring a credit repair specialist in Canada who deals with bad credit mortgages can help you get approved. Credit Repair Now specializes in challenging mortgages such as bad credit mortgages and bad credit home equity loans. We have more options than any other mortgage brokers can offer. We get faster approvals with a preferred mortgage rate and more flexible terms. Get expert advice from mortgage brokers who deal with bad credit mortgages. Contact us now, whether you want to become debt-free, purchase your first home or convert your equity to cash.