April 25, 2022

Bad credit scores don’t always mean you get a mortgage, here are ways you can get a mortgage with bad credit.

Make a larger down payment

Making a large down payment of 20% or above provides you with more leverage when working with lenders. It shows that you have a bigger amount of income and demonstrates your budgeting skills. It will also help you reduce your regular mortgage payments, making them more manageable in the long run. In short, a larger down payment will often make you a more attractive borrower to mortgage lenders. 

Use an alternative mortgage lender

Alternative lenders are more tolerant when it comes to credit. However, you’ll usually need to make a larger than usual down payment of between 20% and 35%. Interest rates also tend to be higher with alternative mortgage lenders. 

Alternative lenders may charge additional fees that traditional lenders don’t. You’ll need to prepare to pay for higher fees, for example, an alternative lender might charge a loan processing fee of 1% of your mortgage’s value. Plus, if you found this alternative lender through a specialized mortgage broker, the broker might also charge you a finder’s fee of 1%. This quantifies to an additional 2% in fees; So, for a $300,000 mortgage, this amounts to an additional $6000 cost.

Get a co-signer or a joint mortgage

If you want to get a mortgage now without increasing your down payment or working with alternative lenders, you could get a co-signer. Your co-signer would guarantee to make your mortgage payments if you’re not able to. A co-signer makes it easier to qualify for a mortgage from traditional lenders since the co-signer’s credit and income are being used for qualification purposes. If you go with the co-signer route, you’ll want to choose someone with good credit, good income, and not a lot of debt who’s willing to co-sign for you.

Improve your credit score

If you aren’t in a rush to buy a new home, you should take steps to improve your credit score. In general, you can do this by paying your bills on time, trying to not use more than 30% of your available credit limit, applying for new credit selectively, and not closing old credit accounts. By consistently taking these general steps, your credit score should start to improve in the coming months. 

Your credit score also impacts your ability to get mortgage default insurance, which is required if your down payment is less than 20%. Mortgage default insurance protects your lender if you can’t make your mortgage payments. As of July 2021, the Canadian Mortgage and Housing Corporation (CMHC) have lowered its minimum credit score requirement for mortgage default insurance from 680 to 600. 

Want to achieve a good “score”?

Here are some tried and true things to keep top of mind as you begin to establish good credit:

  • Always, always pay your bills on time. This doesn’t just include credit cards – late or missed payments on other accounts, such as cell phones, may be reported to the credit bureaus. Don’t skip payments, even if you’re disputing a bill.
  • Keep your credit card balance below the limit. A higher balance compared to your credit limit may impact your credit score.
  • Regularly check your credit scores to see if someone has been stealing from you. If you find the information you believe is inaccurate or incomplete, contact the lender or creditor. Remember: checking your own credit report or credit score won’t affect your credit scores.

Besides credit scores, what else do you need for a mortgage? 

Your credit score is the main factor that lenders look at when qualifying you for a mortgage, but it’s not the only one. Other factors mortgage lenders consider when approving you for a mortgage include:

  • Your income
  • Your employment (salaried/ hourly wage/ self-employed)
  • Your payment history
  • Your financial history
  • Amount of money you want to borrow
  • The property itself

Two key areas that mortgage lenders assess are the monthly living costs for your potential new home and your current sources of debt. 

Your monthly living costs, aside from mortgage payments include Property taxes, Heating, and Condo fees. Your current sources of debt include:

  • Credit card payments
  • Car loan payments
  • Student loan payments
  • Open lines of credit

Another thing you’ll have to pass other than a credit score is a mortgage stress test. The mortgage stress test proves to the lender that you can afford higher mortgage payments if and when higher mortgage rates arrive.

A mortgage lender will take all of these factors into account when deciding whether to approve your mortgage application. You don’t have to be perfect, although if you’re worried you might not be able to look good in most of these areas, a mortgage consultant might be able to help you get a preapproval before looking at properties. 

Don’t fret, BelleMaison will help you get in touch with a mortgage specialist as a complimentary service that comes toward your home purchase. You are assured of sound advice about your mortgage application and other crucial information needed in buying your new home. 

As part of BelleMaison’s Helping Hands, we pride ourselves on being able to provide you with a special session with our mortgage specialist, Heidi Kinar.  All interested homebuyers will be given the opportunity for a one-on-one consultation with Heidi so you can get the best rates and recommendations for the mortgage application that you’ll need. BelleMaison looks forward to giving you a helping hand in buying your new home!

Start your consultation right away by sending us a short message by clicking here

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