Living with a low credit score can make life more difficult. Borrowing money can seem next to impossible, making large goals like buying a home in Toronto, Ottawa, Vancouver, or Halifax seem just out of reach. Many things in life, including renting an apartment, leasing a car, or getting a new job all hinge on the seemingly small number that makes up your credit score.
The reality is that lenders and employers are interested in minimizing their risk. They use information like your credit score to make important decisions about lending money or giving employment. A credit score that is considered low is generally under 650. If your score is lower than 650, you will face difficulties trying to get a mortgage, but it’s not impossible.
Mortgage lenders rely on credit scores to help them decide, but it is not the only factor that they review. If you work with the right team and research bad credit loans in Toronto, you have a better chance of qualifying for a mortgage. Let’s look at a few ways to get a mortgage when you have poor credit.
Larger Down Payment
Most financial experts will recommend that you put a minimum of 20% down on your mortgage payment to qualify for the best interest rates. It is possible to get a mortgage for a smaller down payment which will increase your monthly payments. However, if you have a lower credit score, you may not have the option for a less than 20% down payment. Many lenders will look more favorably towards borrowers that can put a higher down a higher deposit. Having the ability to put down a 30% to 40% deposit may help offset your low credit score and help you qualify for a mortgage.
Down Payment Assistance
If you have poor credit and are unable to save a minimum of 20% for your down payment you may qualify for down payment assistance (DPA). You will need to apply for one of the following DPA’s:
- Forgivable no-interest loans
- A deferred payment no-interest loan
- A low-interest loan with an extended repayment period
Do your research about all of these loan options and download the applications for down payment assistance online. Keep in mind that this type of assistance will require you to take on additional debt and repayment terms in the future. You will need to work your down payment loan payments into your budget.
Your credit report doesn’t necessarily tell the whole story about your borrowing and financial history. Most standard credit reports only display items that negatively impact whether you are a reliable lending risk. If you are struggling with bad credit from past mistakes, there are other ways that you can help to give your credit a boost.
Everyday bills like your phone and cable billing are items not included in your credit report but your good standing on these accounts could change the picture of your credit. You can sign up for programs that will help to have these types of smaller accounts included in your credit history and boost your overall score. Companies like Experian Boost and UltraFICO can help you to rewrite your credit report to your advantage.
Traditional lenders can be stringent in their decision-making process to loan money. They calculate any risk to their investment and make it difficult for anyone that doesn’t have a high credit score to secure a mortgage loan. If you have poor credit, your best option may be to apply for a mortgage with a private lender. Private investors are less focused on your credit score and more on the value of the property and your other factors or risk. High-risk lenders will work with you to get a mortgage, although you may not have the same flexibility in contract length along with higher interest rates.
If you can’t qualify for a mortgage on your own, you can consider using a co-signer. A co-signatory is someone that you know that can add their good credit score and reputation to your application to help you qualify for a mortgage. The risk is that the co-signer becomes equally responsible for the payment terms on your mortgage. If you fail to make payments, the co-signer could end up being liable for your debt. This is a tough decision that should be made very carefully, especially when asking a family member or a friend to put their name on your application.
Although it is possible to get a mortgage when you have poor credit, there are disadvantages, including a less flexible repayment contract and higher interest payments that can increase your overall investment significantly. The best path is to try to raise your credit score before you apply for a mortgage. However, if you need to purchase a home quickly, you can follow these tips to help you qualify for a mortgage with poor credit.