Bad Credit Mortgages in Canada – How to Get Approved
When it comes to getting a mortgage with bad credit, it can be challenging, but it is not impossible. Bad credit can make it more difficult to get approved for a mortgage, but there are lenders who specialize in providing mortgages to those with bad credit.
What is Bad Credit?
Before we dive into the details of bad credit mortgages, let’s first define what bad credit is. In Canada, credit scores range from 300 to 900, with 900 being the highest score possible. A credit score below 600 is generally considered to be bad credit. Credit scores are determined by a variety of factors, including payment history, outstanding debt, length of credit history, and recent inquiries.
What is a Bad Credit Mortgage?
A bad credit mortgage is a mortgage specifically designed for borrowers with a poor credit history. These types of mortgages often come with higher interest rates and more restrictive terms and conditions compared to traditional mortgages. Bad credit mortgages are typically offered by alternative lenders who are willing to take on higher-risk borrowers.
Types of Bad Credit Mortgages
There are several types of bad credit mortgages available in Canada which include the following:
Subprime mortgages are mortgages offered to borrowers with poor credit scores. These types of mortgages often come with higher interest rates and fees compared to traditional mortgages.
A second mortgage is a type of mortgage that allows borrowers to use their home equity to secure a loan. Second mortgages are often used by borrowers with bad credit who are unable to qualify for a traditional mortgage.
Private mortgages are mortgages offered by individuals or private lenders. These types of mortgages often come with higher interest rates and fees compared to traditional mortgages.
A rent-to-own mortgage is a type of mortgage that allows borrowers to rent a home with the option to purchase it in the future. Rent-to-own mortgages are often used by borrowers with bad credit who are unable to qualify for a traditional mortgage.
How to Qualify for a Bad Credit Mortgage
Qualifying for a bad credit mortgage in Canada can be difficult, but there are several things you can do to increase your chances of approval. Here are a few tips:
Improve Your Credit Score
The first step to qualifying for a bad credit mortgage is to improve your credit score. You can do this by paying your bills on time, reducing your debt, and limiting the number of credit inquiries.
Save for a Larger Down Payment
Lenders may be more willing to approve your mortgage application if you can provide a larger down payment. Saving for a larger down payment can also help reduce your monthly mortgage payments.
Find a Co-Signer
A co-signer with a good credit history can help you qualify for a bad credit mortgage. A co-signer is someone who agrees to be responsible for the mortgage payments if you are unable to make them.
In Canada, credit scores range from 300 to 900. Generally, a credit score below 650 is considered to be a “bad” or “poor” credit score. However, the exact threshold for what is considered a bad credit score may vary depending on the lender. Most mortgage insurers require a minimum credit score of 600 but the lender’s requirements take precedence over the insurers’.
If you have a credit score below 650, you may have difficulty getting approved for credit cards, loans, or other forms of credit. Even if you are approved, you may be offered higher interest rates or less favourable terms than someone with a higher credit score.
It’s important to note that credit scores are not the only factor that lenders consider when evaluating creditworthiness. They may also look at your income, employment history, debt-to-income ratio, and other factors. However, having a low credit score can still make it more difficult to obtain credit, and may result in higher costs or less favourable terms. Lenders will often want to hear why your credit score has suffered. These reasons are often temporary and understandable like a divorce or illness and don’t reflect the borrower’s present situation well. A good mortgage broker will be able to help you find the right lender and get approved.
For more information on mortgages for bad credit call 416-912-6200
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