How To Finance a Home with a Poor Credit Score
posted in Mortgage News
Do you dream of one day owning your own home, but worry that a poor credit score will make your dreams unattainable? Fortunately, even if you do have bad or bruised credit, there is a potential solution, and while there aren’t as many mortgage options out there for those with a poor credit score, there are some.
The best way to understand your mortgage options in detail if you have a poor credit score, is to work with a mortgage broker; someone who works independently of the big banks and has vast knowledge of the local market and the various mortgage options available to you. Note that they often have access to deals that you might not ordinarily be privy to were you to search for a mortgage without their assistance.
Here's what a good mortgage broker will tell you:
Buying a home costs more with a poor credit score
For prime rate preapproved mortgages, you must be under no illusions as to how high your credit score must be. When your credit score is lower, your rate of interest will be higher, and while you must also pay the mortgage brokers fee, your investment will soon pay dividends when you’re able to purchase the home of your dreams.
One solution to combat the financial burden of a mortgage when you have a poor credit score, is to refinance later and get a lower payment. Provided you make on-time payments on your first time mortgage, you’ll be able to raise your credit score significantly.
For a bad credit loan, what credit score will you need?
If not working with a mortgage broker and seeking a mortgage through the major Canadian banks, you simply won’t qualify for any of them if your score is below 600. For Trust companies, they like you to have a credit score of around 550 and above, while private lenders – such as those your mortgage broker can introduce you to – have no score requirements for lending.
Banks look closely at your credit score when evaluating you for a mortgage, while private lenders can give you a loan based on the value of the property, and because they believe everyone, no matter their financial circumstances, deserves to have a home to call their own.
Improving your chances of mortgage approval with a poor credit score
Begin by looking in detail at your credit history: are you aware of the fact that there are often errors in credit reports that can negatively affect your score? To know whether this has happened to you, you’ll need to get a copy of your credit history and evaluate it thoroughly.
If you have a lot of credit cards, debt consolidation might be worth considering. By putting all your loans into one lump sum payment, you can get back on track quicker by decreasing your debt-to-ratio.
While raising your credit score is not something that will happen overnight, it is possible to get a first time mortgage by fixing past problems with your credit, and seeking help from a mortgage broker can put you in the best position to do this.
It’s important that when you do start looking for a home with a poor credit score, that you select a property with enough equity to cover the loan. Private lenders will want to reduce the risk for them should you go into default, by ensuring that the home has positive equity; they can then sell it to recuperate their losses. For further advice and guidance, schedule a consultation with a local mortgage broker.