Do you have a poor credit rating because of financial problems you have had in the past?
Perhaps you went through a bad divorce or you owned a small business that failed resulting in bankruptcy or a consumer proposal.
You might have lost your job and ended up defaulting on your loans and credit cards. There are many circumstances that could have caused you to have poor credit.
This does not necessarily mean that obtaining a mortgage to purchase a home is out of the question and regardless of the circumstances speaking with a mortgage broker could help you with a course of action toward owning a home.
Ensuring that you take the right steps whether you have bad credit or even no credit is very important. There may be some options available to you but they will come with a cost.
Here’s a guide to what we are going to take a look at to determine what options might be available for mortgage financing.
Check your credit score
If you have a credit score below 600 most of the major bank lenders in Canada will not consider you for mortgage financing and you will be looking at an alternative mortgage lender. If you have gone through a bankruptcy or consumer proposal recently the options available may include private lenders.
Save for a larger down payment
If you have good credit then you can purchase a home with as little as a five per cent down payment but with credit issues 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 fees
Be prepared to pay some fees to arrange a mortgage with either an alternative or private lender on top of the standard closing costs.
You will not qualify for the best rates that are currently being advertised but if you make all of your payments on time and work on repairing your credit then most likely you will qualify for better rates at renewal time.
Income and employment
A lender is going to review your history of employment and income to ensure that you are able to make your payments. Is your income confirmable? (Declared on your tax returns with your taxes paid up-to-date). This is particularly important for the self-employed applicant. Do you have employment stability?
Carrying high balances on unsecured credit cards or having a high car payment could also affect a mortgage decision. Alternative lenders will want to ensure that you can afford your current obligations to prevent the potential of future default on a mortgage payment.
The property you are purchasing
This is a very important factor for private lenders lending to clients with bad credit. They will want to have a full appraisal completed on the property to ensure that it is marketable and worth the investment they are making in the mortgage.
It may be possible to obtain 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 that can be determined after a full review of the circumstances which might include a co-signor until you have re-established your credit.
This is a great time of year to do a full review if you are thinking about purchasing a home early next year.
Please reach out for a complimentary assessment with recommendations including a credit repair program.