How to buy a house with bad credit in Canada
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Credit is one of the tools you can use to access many financial benefits. For example, having a high credit score allows you to earn reasonable interest rates on credit products like auto loans, credit cards, and mortgages. But what happens to those financial opportunities when your credit score is lower? Now, many people would have no problem not being able to rent or own a car. But Canadians have only one goal in life that they want to achieve: owning a home to raise their family.
Tips for getting a mortgage with bad credit in Canada
If you have bad credit and there is no error on the credit report that could lower your score, you can get a mortgage loan by following the advice given.
- Talk to a reliable mortgage broker
When you have bad credit, a mortgage broker can negotiate the loan on your behalf. Licensed professionals can guarantee their clients’ mortgages with several lenders. Thus, they fully understand those who can help borrowers with similar credit scores to yours. The right mortgage brokers will connect you with lenders who have flexible requirements and help you repair your credit score.
- Have a co-signer for the mortgage
Lenders need to make sure your mortgage payment is made on time. So if your credit history isn’t good enough, you can take comfort in asking someone with good credit, such as a parent or sibling, to co-sign the mortgage. So your co-signers will be online if you can’t make the payments. Of course, you and the co-signer must be comfortable with the arrangement and fully understand the risk.
- Increase your deposit
Some private lenders will agree to issue a bad credit mortgage (also known as a high risk mortgage), but only to borrowers who can make a down payment of at least 20% of the purchase price of a home. As the average home price in Canada now stands at $ 586,000 (or more in major centers like Vancouver and Toronto), the 20% down payment may eventually be in the six-figure zone (that is, that is, $ 117,200) on average.
You might be wondering, “Why would someone have bad credit to start with if they could save over $ 100,000?” Well, you are not wrong. However, lenders are looking for profit, and your credit score is definitely making you look like a bad risk. So, they can’t be blamed if they want to be reassured by that 20% equity in the home to secure the mortgage.
Other tips for buying a house with bad credit
While taking some time to rebuild credit will work for you when looking for a mortgage, remaining patient with those who have filed for bankruptcy or had a consumer proposal is especially crucial.
Most conventional lenders (banks and any other financial institution, conventional mortgage brokers, etc.) may not even approve you for a two-year mortgage once the deal is off. So, it is better to take the time to improve your finances and improve your credit scores.
- Find a stable job
If you have a decent income and good credit, even as a freelance or commission worker, lenders won’t turn down your mortgage. But when you don’t have good credit, have gone bankrupt, or made a consumer proposal, the lack of stability in your work history will only make the lender see you as a risky investment. For this reason, it is best to look for a stable source of income, especially if you want to work with a lender.
- Find private and risky lenders
If you cannot wait for credit to be restored, you may need to seek out lenders who deal with bad credit borrowers. When the score is below 600, you may have no choice but to go with private lenders. If the credit score is a little higher but not great, you might qualify with bad credit credit institutions or trust companies.
- Save for larger down payments
Due to the reduced prospects of securing the mortgage with a lender, a better idea would be to save money by making a large down payment. Of course, this will help you qualify with subprime lenders if you want to, but it is also a mark that you are improving your finances. In addition, it shows that you are not a significant financial risk for the major lenders that you can apply to in the near future.
A larger down payment dramatically shortens the mortgage payment period, or you can make small payments to pay off the high-risk mortgage for an extended period.
- Work to increase your credit scores
This is another aspect where patience is truly considered a virtue. You will have to take some time to make an effort to rebuild damaged credit scores. To do this, you need to be responsible for the financial commitments and credit products you have. This means paying your bills in full and on time, regardless of the amount.
When you can’t afford to pay your full credit card statement, make sure you can at least afford the minimum monthly payment. If you are not eligible for unsecured credit cards, it is best to use a secured credit card at this time. But it’s crucial that you don’t apply for a lot of new credit early on, as thorough investigations bring your credit rating down which could show that you are still facing debt issues.
As you can see, you can still buy your dream home if you have bad credit in Canada. You just need to follow the steps given above.