It’s possible to get an institutional mortgage with a less than stellar credit score, but if you do the chances are the interest rates will be higher because you’ll be viewed as a greater financial risk. If you have bad credit, many banks may not want to work with you as they prefer “A” type borrowers who present a lesser risk.
There are lending institutions which offer mortgages to those with bad or poor credit, but there may be certain stipulations in place. For example, they may require you to pay a higher down payment on the home or property such as between 15 and 25 per cent.
It used to be quite difficult to get a mortgage in Canada if you had bad credit, but things have changed to a certain extent over time. Lenders and mortgage brokers often take into account the reason people may have a bad credit rating and are now more open to doing business with them. But even though bad-credit mortgages can be obtained in Canada, the financial institutions still want to make sure that you can handle the payments on time. The lenders will look at your debt-to-income ratio and make sure it falls within a specific category.
They also want to be sure that the home you want to buy is affordable for your income and will utilize a point system when determining if you’re eligible for a mortgage. It may seem odd that homeowners with bad credit will be charged a higher interest rate since they may be the ones who can least afford it, but many lending institutions see this as an incentive for them to pay off the debt as soon as possible.
Obtaining a mortgage with less-than-perfect credit will actually help build your credit score as long as you make the payments on time. It’s still not always easy getting a mortgage for those who have bad credit and it usually takes longer for the application to be assessed and accepted. The reason for this is generally because the financial institution has numerous factors, circumstances, and details to take into consideration and work out with the borrower.
Check your credit score
You’ll never know if you have bad credit until you or the lending institution checks your credit score. Therefore, before applying for a mortgage it’s recommended that you check your credit status to see just where you stand. This way you’ll know what t expect when dealing with a financial institution. In addition, the report could be erroneous and it will be worth taking the time and effort to make sure it’s corrected. If corrections mean the report will improve then you’ll typically receive better mortgage rates. You can access credit reports with credit-reporting agencies including TransUnion and Equifax.
The credit score is often referred to as a beacon score or FICO score. This is usually what makes or breaks your chances of receiving a mortgage. The credit scores range between 300 to 900 with 900 being the best and 300 the worst. Anything below 600 is classified as poor credit by most lenders and scores below 550 are regarded as bad. The credit score takes into account your payment history, how much you owe, the length of your credit history, new credit and types of loans. It’s important to make all payments when they’re due to keep your credit score at its best.
Explore your options
You need to shop around when looking for a bad-credit mortgage to find the best terms and interest rates. You may be surprised to find out how much they may vary. Some institutions will offer rates that may be slightly higher than the norm while others may charge significantly more. You may also want to combine all of you current debt into one mortgage loan as this could save you a significant amount of money each month.