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Bad Credit Mortgage

A credit score is a simplified way for lenders to get an idea of how reliable and consistent you are at paying off debts and loans. Your credit score will determine whether you are eligible for a regular mortgage or if you will have to finance your home with a bad credit mortgage. Young people and newcomers will often be affected because they won’t have a long credit history. If you have a low credit score and are looking to purchase a home you may still be able to get a bad credit mortgage. Credit scores in Canada range from 300 to 900, and the higher your score is the better. If your credit score is below 700 and you are seeking financing for your home purchase you may be interested in looking at bad credit mortgage options with prime lenders like banks or with trust companies and other bad credit specialist lenders.

When applying for a bad credit mortgage the lender will typically look at your credit score and history, your income and employment history, the size of the down payment, and the property when deciding on if they want to provide you with a loan. The mortgage rate for a bad credit mortgage will be higher than a regular mortgage and may range above 5% and even 10% in some cases. The better your credit score and income are and the larger your down payment is the lower the mortgage rate will be.

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    A bad credit mortgage is an option for people with a less than optimal credit score who are looking to finance their purchase of a home. A credit score is a number that gives lenders an idea of how safe or how risky it would be for them to provide their services to you. In Canada this number goes from 300 to 900, and the higher the number the better your credit score is. You build your credit score and your credit history over time by consistently and reliably paying off loans and debts, such as student loans, car loans, and credit cards. If your credit score is lower than what is ideally asked for you may still be eligible for a bad credit mortgage. A bad credit score typically indicates financial difficulties in the past, such as people who have experienced bankruptcy or have had difficulty paying back their loans. However, a bad credit score can also be due to a lack of a long borrowing history, which is often the case with young adults and newcomers. If your credit score is below 700 you may not always be eligible for the best rates with lenders and may need to talk to lenders that specialize in providing a bad credit mortgage. If your credit score is below 600 you may have to speak with private lenders.
    Prime Lenders: A prime lender will have the strictest requirements for your bad credit mortgage but can generally offer the best mortgage rates. Prime lenders will include the traditional lenders you would first think of when applying for a mortgage such as the major banks. While they typically prefer applicants to have a high credit score you may be able to get a bad credit mortgage with them with a credit score as low as 600. Trust Companies and Bad Credit Lenders: Financial institutions that specialize in providing a bad credit mortgage will include trust companies and other institutions that work with people with a bad credit score or history. Typically a bad credit lender or trust company will work with people who have a credit score of 700 or lower, and may be able to provide you with a bad credit mortgage with a score as low as 550. Private Lenders: A private lender can include a private company or an individual lender willing to provide a bad credit mortgage to someone who has a poor credit score or history. Some private lenders will only provide loans to finance the down payment of a mortgage. While their mortgage rates will be much higher than a prime lender or trust company, private lenders typically become an option to consider if your credit score is below 600.
    If you have a poor credit score and are thinking of applying for a bad credit mortgage there are some things to consider first. Lenders will look at many things during the application process but will typically focus on: Credit Score and Debt History: A credit score and your debt or credit history provide a quick snapshot of your risk profile for a lender. Your credit score will determine whether you are eligible for a regular mortgage or will have to finance your home purchase with a bad credit mortgage. Credit scores in Canada range from 300 to 900 with a higher score being better. If your score is lower than 700 or you have a history of missed payments you may have to opt for a bad credit mortgage. Income and Employment History: The primary concern for a lender is if you will be able to pay back the loan reliably over time. As such they will be looking at your income and employment history when you apply for a mortgage. If your credit is below ideal and you have a low income or an employment history that is difficult to verify then you may be required to apply for a bad credit mortgage. Property: Any time you apply for a mortgage the lender will want to look at the property. They will look at the state of the construction and required maintenance costs of the property, the area it is in, and if they consider it affordable for you. If you are applying for a bad credit mortgage the lender may be stricter with the type of property they are willing to finance. Down Payment: In Canada the minimum down payment on a property is 5% with that amount rising to 10% of a property that is valued over $500,000. If you are applying for a bad credit mortgage a large down payment may be requested by your lender to offset their risk. The larger your down payment the better mortgage rates you will be eligible for. For all your bad credit mortgage needs, trust the experienced team at Mortgage Squad Agents to find a solution that is right for you.

    Tips for Getting a Bad Credit Mortgage

    Because the burden to prove eligibility is greater on self-employed individuals, it pays to be well prepared before applying for a loan. The following should be considered before going into apply for a Self-Employed Mortgage:

    Improve your credit score

    Improving your score can help make you eligible for a bad credit mortgage and may get you a lower mortgage rate. Paying bills and loans on time, paying down debt, and keeping your debt at a manageable level can help improve your credit score.

    Put down a larger down payment

    When applying for a bad credit mortgage a larger down payment is beneficial. It reduces the risk for the lender and can lower your mortgage rate. A down payment greater than 20% can free you from being required to purchase mortgage default insurance.

    Find the best lender for you

    Different lenders will have different risk allowances and requirements. The right lender can get you a better mortgage rate and can be the difference between getting a bad credit mortgage and not getting one so shopping around is to your benefit.

    Consider a joint mortgage or a co-signer

    When applying for a bad credit mortgage it can be easier to make a joint purchase with someone you trust, often a family member like a parent. This can reduce the risk for the lender and may get you a better mortgage rate. The co-signer and you will share the ownership of the property and the risk.

    Work for a better mortgage renewal

    If you already have a bad credit mortgage and have a term agreement you can work to improve your credit score and take advantage at the next renewal. As your credit score improves you can lower the mortgage rate on your mortgage term renewal which can save you a lot of money.

    Is it harder to get a mortgage if I am self employed?

    Obtaining a Self-Employed Mortgage can be more difficult than a traditional mortgage as the borrower has to take extra steps to prove to the lender that they are capable of maintaining regular payments on their mortgage. It is possible that depending on the financial institution, that Self-Employed Mortgages are not offered at all. Where they are offered, there is also the chance that banks will significantly increase the interest rates for these loans, making them a more difficult consideration for borrowers. To give a better chance at being approved, lenders are expected to offer a large down payment, up to 20% or higher, as well.

    Another difficulty associated with Self-Employed Mortgages is the lack of a T4. A full time Employee can provide proof of income through a simple T4, however a self-employed individual must provide a stated income form, which shows the amount the potential borrower claimed to have earned, and then must provide documentation which can prove the stated amount is accurate.

    Lenders will also apply the Debt Service Ratio when considering your eligibility for a loan. This is a measurement which determines your ability to maintain regular payments on a loan after all your financial responsibilities have been considered. These include monthly bills, car loans, lines of credit, student debt and any other loans.

    If after considering these other factors the bank is confident that you are able to meet their requirements for regular payments, you will be eligible for a loan.

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    Commonly Asked Questions

    If you have a bad credit score it is still possible to get a mortgage. If a prime lender like a bank is not willing to finance you there are trust companies and bad credit lenders who specialize in providing bad credit mortgages, in addition to the option of private lenders.
    If you are applying for a bad credit mortgage your mortgage rate will be higher than a typical mortgage. The mortgage rate can range from above 5%, and in some cases even above 10%, and will depend on the lender and your credit score, income, down payment, and the property.
    Improving your credit score for a bad credit mortgage will involve being consistent and reliable at paying back your debts and loans. Paying bills on time, keeping up payments on your loans, and paying off your credit card each month will help raise your credit score. Debt consolidation can also be an option if you are struggling with debt management.

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