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How To Avoid A High Risk Mortgage

How To Avoid A High Risk Mortgage

posted in Mortgage News

High risk mortgages are generally offered to individuals with bad credit, and the easiest way to avoid only being able to qualify for such a mortgage, is to improve the factors that make you a risky borrower. That said, credit scores cannot be altered much overnight, and even if they could, another event such as defaulting on another loan, could you find you catapulted right back into high-risk territory. However, there are some solutions that can be used to help improve your chances of qualifying for a better mortgage, and they are as follows:

Try to improve upon your credit score

Free credit reports can be obtained from a credit reporting bureau and they’ll give you a much clearer idea of your financial history; in turn, this should give you the information you need to make some positive changes to improve your score.

Eliminate any errors on your credit report

It’s not unheard of for credit reporting bureaus to make a mistake that can prove harmful to an individual’s credit score, and the only way to help minimize these, is by keeping a close eye on your credit score. One small error on the bureaus part, can cause big problems when applying for a mortgage, so be sure to check for errors in your credit card and other loan accounts. One such mistake commonly experienced, is a timely payment being reported as late, or a negative item remaining on your credit report longer than it should. In some cases, you might even discover an item on your credit report that you hadn’t authorized, which could be a result of identity theft. If you do discover that your identity has been stolen, report it immediately to both the credit bureau and the Canadian Anti-Fraud Centre.

Challenging an item on your report that hasn’t occurred as a result of fraud, however, is a little trickier, and you’ll need to find supporting receipts and bank or credit card statements to support your claim. If you can do this, then you can go on to complete the credit bureaus error correction form, and leave them to review your case.

Have the funds for a higher down payment

As a high-risk borrower (and you’ll usually know if you are one, if not, you’ll soon find out once you start applying for mortgages!), it’s always sensible to prepare yourself for a higher down payment, as even in a worst-case scenario, doing so will help lower your loan-to-value ratio (LTV), which could make lenders view you more favorably. Ultimately, the less of a risky borrower you are, the lower the mortgage interest rate you’ll be offered.

Do your best to settle any existing debts

If you have the opportunity to save up some money and pay down your existing debts, you’ll find that your debt-to-income ratio will fall. Oftentimes, even if you can only reduce your ratio by a few percentage points, this can make a significant difference and help you qualify for a better mortgage, while also improving your credit score over time.

Working closely with a local mortgage broker can help you get a better idea of your mortgage options, and by taking the above steps wherever possible, you can make yourself less of a risk for lenders.

 

Mortgage News

11 dJan, 2022

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