You’ve had some financial setbacks when life’s hardships have affected you, but now you’re on the right track and ready to jump to buying a property. The only problem is that you do not know if your bad credit history can prevent a lender from granting you a mortgage. The good news is that there are options available to you; The bad news is that they are not always cheaper. Here is a brief summary of how you can check your credit score if you need to get a mortgage with bad credit.
Check your credit score
In Canada, your credit score is between 300 and 900 assigned to you by a credit bureau (the two largest credit bureaus in Canada are EquaTrans and NorthUnion) and serves to inform lenders of how you have managed credit available in the past. To check your credit score, you can either pay EquaTrans or NorthUnion for a report including your score, or you can consult a mortgage broker who can check it for free. If you have always paid all your bills on time, do not have a major bankruptcy and, in general, you do not have more debts than you can reasonably repay, you should have a credit score above from 680, if not continue reading this article.
Find a mortgage creditor when you have bad credit
If you have a credit score between 600-700 or higher, you should be able to get a mortgage from one of the big banks, commonly referred to as “Lender A”. If, on the other hand, you have a credit score below 600, most major banks in Canada will not approve you for a mortgage. Instead, you will need to look for a “Type B lender” or a “subprime lender”; These financial institutions, including trust companies, work almost exclusively with people who do not have ideal credit. And if you have recently been bankrupt or a consumer proposal (in the last two years), you may have to work with a private mortgage lender. If you work with a mortgage broker, they should be able to put you in touch with a lender who can assist you.
Save for a wider investment
Lenders look at a number of things when considering your mortgage application, including your credit score, your income, and your debt levels. If you have good credit, you can get a mortgage from most lenders with only a 5% down payment because you are considered low risk. If you have bad credit, the lender takes a higher risk by lending you money, so most will want a much larger deposit, often 20 to 25%. The advantage is that a higher mortgage can give you a little more power when it comes to negotiating a mortgage rate, because you are less risky than someone who has very little equity in their house.
Get ready to pay extra
In addition to saving for a larger investment, you will also need to save more money for additional fees. First, lenders can charge up to 1% of the value of the mortgage loan to process an application with bad credit. In addition, because banks do not generally compensate brokers when they bring in customers with credit problems, your broker may also charge you 1% additional fees. Two per cent on a $ 391,820 house – the national average according to the Canadian Real Estate Association – is $ 7,836. Add it to a 20% deposit ($ 391,820 x .20 = $ 78,364) and you’ll need $ 86,200 in cash before you can make the purchase.
Say goodbye to the best mortgage rates
As mentioned above, your credit score has a direct impact on which lender you can work with, as well as the mortgage rate you can get. If you have good credit, you can work with the big banks and get some of the best mortgage rates. If you have less than a higher credit, you will have to work with a “Type B lender” or a private lender and, therefore, be subject to higher interest rates. Remember, your lender looks at your report and credit score to determine how risky it is to lend you money. If you wish to access a lower mortgage rate at the time of your renewal, make sure to make all your monthly mortgage payments on time and take other steps to increase your credit score, including the use of a credit card. credit responsibly and / or repayment of any other debts you may have.