Aspiring Canadian homeowners often dream of owning their own home; however, with housing prices steadily climbing higher every year and subpar credit scores making the path more daunting than ever.
Good news if your credit score is less than stellar: there are options available to those without stellar scores, although these mortgages tend to carry higher interest rates compared to traditional A lenders.
High-Risk Lenders
Bad credit makes mortgage loans harder to obtain, but some lenders offer bad credit mortgage Canada - B lenders or subprime lenders, typically known as subprime. B lenders only lend up to 75% in most Canadian provinces (other than Saskatchewan) and up to 80% in large cities such as Toronto or Vancouver; typically these lenders require a substantial down payment and higher interest rates from their borrowers.
Even with poor credit, Canadians can still purchase homes. To improve your chances of securing a mortgage even with poor credit, focus on improving your credit score to lower interest rates and make yourself a more desirable borrower for mortgage lenders. Do this by paying bills on time, limiting inquiries on your report, and refraining from applying for new loans/lines of credit unless absolutely necessary; similarly limit applications for other financial products (personal loans/credit cards etc) so as not to further lower it.
Private Lenders
Private mortgage lenders are an excellent solution for people with poor credit. Their lending requirements tend to be less stringent than banks' and they can offer competitive rates. Furthermore, private lenders place greater importance on equity in your property so that they can quickly sell it through power of sale and make a profit from selling quickly through power of sale.
Private lenders consider several other factors besides credit scores when making decisions on loans for individuals, such as existing assets and income sources available as well as the appraised value of your home. They may even consider co-signers with strong credit to help get approval for a mortgage loan.
Bad credit information may stay on your report for six years, but it is possible to repair it over time. Make regular payments and pay off debts as part of a plan to improve your score and increase it over time. If you're having difficulty finding lenders who provide mortgage loans to those with poor credit ratings, talk with a mortgage broker who may help connect you with one.
Down Payment
No matter your credit score, mortgage approval can still be achievable through private lenders if there is sufficient equity in the property. Lenders also consider other forms of documentation to verify your responsibility as a borrower such as rental payments to landlords, utilities and cell phone bills - these documents demonstrate your responsible borrowing habits and can help make approval possible.
Credit scores in Canada typically range from 300 (low) to 900 (high), though categories differ depending on your lender. Most banks will reject your application if your score falls under 660.
Negative information will remain on your credit report for six years after it first appears, including bankruptcies and foreclosures. Some negative items can be removed earlier such as debt management plans and consumer proposals. To improve your score, the best strategy would be paying down debt with help from mortgage co-signers - this increases your chance of qualifying for better rates; alternatively you could work with a broker that specializes in bad credit mortgages.
Interest Rates
Navigating the mortgage application process when you have poor credit can be challenging. But there are strategies available that may increase your odds of approval, including recruiting a co-signer or using a mortgage broker; you could even seek private lenders who may help secure funds to buy your home.
B lenders will often look past low credit scores if they feel the property is marketable and that you will be able to repay their loans, although their interest rates tend to be higher than banks' and have shorter loan term lengths that serve as temporary fixes while you work to improve them.
Before applying for a bad credit mortgage, make sure you fully comprehend its annual interest rate and fees that may be assessed against it. Aside from principal and interest payments, additional charges may include broker or surety fees as well as application charges.
