How to get a mortgage with bad credit explained

If you have bad credit, you may be wondering if it’s possible to get a mortgage. While having a low credit score can make it more difficult to obtain a mortgage, it’s not impossible.

What is bad credit?
First, let’s define what we mean by “bad credit.” 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 or creditor.

Having bad credit can make it more difficult to obtain credit, including mortgages. Lenders use credit scores to evaluate creditworthiness and determine the risk of lending money to a borrower. A low credit score may indicate that the borrower is more likely to default on their loan, which makes them a higher risk for the lender.

Can you get a mortgage with bad credit?

While it may be more difficult to get a mortgage with bad credit, it’s not impossible. There are a few things you can do to increase your chances of getting approved for a mortgage:

Improve your credit score
The first thing you should do is work on improving your credit score. This may take some time, but it can make a significant difference in your ability to get approved for a mortgage. Some ways to improve your credit score include paying your bills on time, paying down debt, and disputing any errors on your credit report.

Save for a larger down payment
If you have bad credit, lenders may require a larger down payment in order to offset the risk of lending to you. Saving for a larger down payment can demonstrate to lenders that you are committed to the purchase and are willing to take on more of the risk.

Look for alternative lenders
If traditional lenders are unwilling to approve you for a mortgage, you may need to look for alternative lenders. These lenders may be willing to work with borrowers who have bad credit, but they may charge higher interest rates or require a larger down payment.

Consider a co-signer or co-borrower
If you have a family member or friend who has good credit, they may be willing to co-sign on your mortgage. This can help to offset the risk for the lender and increase your chances of getting approved for a mortgage.

Work with a mortgage broker
A mortgage broker can help you navigate the process of getting a mortgage with bad credit. They have access to a variety of lenders and can help you find the best option for your needs. They can also help you understand the requirements for getting approved and can advise you on steps you can take to improve your chances of getting approved.

It’s important to keep in mind that getting a mortgage with bad credit may come with higher interest rates or less favourable terms than someone with a higher credit score. It’s also important to ensure that you can afford the monthly payments before taking on a mortgage. Consider factors such as your income, expenses, and future financial goals before making a decision.

While it may be more difficult to get a mortgage with bad credit, it is possible with some effort and careful planning. By improving your credit score, saving for a larger down payment, looking for alternative lenders, considering a co-signer, getting pre-approved, and working with a mortgage broker, you can increase your chances of getting approved for a mortgage. Remember to carefully consider your options and only take on a mortgage that you can afford.