Are You Eligible to Apply for a Home Mortgage With Bad Credit?
For any mortgage, the lender will review your financial situation and credit report before approving you for a home mortgage loan. In order to lower their own risks, lenders prefer borrowers with a healthy credit history and good credit score. However, depending on your situation, exceptions may be made.
Here are a few steps you can take to determine whether you will qualify for a mortgage:
1. Speak with a mortgage agent
A mortgage agent or broker can help you provide information regarding several lenders. Therefore, you’ll have more chances of getting a loan despite your bad credit. If you’re going to a specific lender such as one of the five big banks or a credit union, then you’ll have only the limited options they have. The broker will find lenders in accordance with your financial situation who will be interested to work with you.
2. Review your credit report
Before applying for a loan make sure that you review your credit report. Applying for your credit report from each of the credit reporting agencies in Canada: Equifax and Transunion. Take out a copy of your credit report either online for approximately $20 or request by mail and receive your report for free. Viewing what is recorded on your credit report and understanding your score is important in determining whether you are credit worthy.
3. Compare rates before applying for a mortgage
Make sure you compare the rates offered by different lenders before applying for a mortgage loan as it’ll help you find a lender who offers the best interest rate for the type of mortgage you are looking for. Typically, a mortgage agent or broker will be able to find you a better rate than a traditional bank.
4. The higher your net worth, the better
Approaching a lender with little to your name in terms of assets, large amounts of debt, and poor credit, are a bad combination. On the other hand, having some assets and poor credit will show the lender that you have taken steps to build your net worth and are more likely to follow through with loan payments.
5. Watch for fraudulent lending companies
When you have poor credit, must be weary of fraudulent lending companies. There is a mushrooming growth of fraud mortgage lending companies and these companies are targeting the vulnerable debtors due to their desperation. Before signing any documents provided by the lender, ensure that you fully read and understand the clauses to avoid further complications.
6. Find a cosigner
If your credit is poor, look for a willing family member with a clean credit report to cosign. When creditors find that you have a cosigner with good credit, it will be easier to get a loan with favourable terms. In some cases, it may be best to remove yourself from the mortgage completely and work out a contract through your lawyer to ensure both sides are protected.
Regardless of how you go about looking to finance a home, you should be aware of your credit standing and take steps to improve if you have credit blemishes. Making minimum payments on-time and using your credit cards and other borrowing tools responsible can get you back on track much sooner than you may think.
Need some advice with your current credit situation? Contact Home Mortgage Ontario to have a free financial analysis completed!