If you have bad or bruised credit, you have come to the right place. Mortgage brokers specialize in this as the banks that give these kinds of mortgages are not offered to the public. The reason is traditional banks/lending institutions that you can just walk into yourself will not usually lend to you with bad credit. If you have a credit score less than 620 or if you’ve recently declared bankruptcy, did a consumer proposal etc, traditional mortgage providers could be hesitant to give you credit. While banks and other sources of loans do factor in various criteria, a good credit score is typically high on their list of priorities. A good credit score indicates that you’re responsible with credit and can be trusted to repay the loan on schedule. When you get the mortgage product you need with a bruised or bad credit score, you will have to expect to pay higher interest rates. You may also have to agree to added terms and conditions designed to secure the provider’s interests in case of a default situation. The mortgage broker will research the whole market for the best mortgage for each individual situation with bad credit reports.
Check Your Credit Report for Potential Errors
Every person should stay on top of their credit scores by requesting a free report. All credit agencies like Equifax Canada and TransUnion provide you with one report every 12 months. Examine this report carefully and identify any inaccurate information that affects the final score. Here are some of the errors to look for:
- Errors in recording your name and address
- Debt or open lines of credit that have been mistakenly repeated to show a higher overall debt
- Loan or credit card payments linked to the wrong account
- Identity theft resulting in bad debts and unverified expenses
Spotting the errors and getting them removed from your report could raise the final score and help you buy a home.
Get a Stable Job that Earns You a Steady Income
The best way to assure mortgage providers and repair a bruised credit is to get steady employment. Lenders need assurance that you have a regular source of income and can keep up with your monthly payments with the minimum risk of defaulting. Even if you run a business, you could provide the Canada Revenue Agency’s notices of assessment to prove a regular verifiable income. If you cannot provide proof of “confirmable” income, you can still buy a house with a bruised credit. Here’s what you’ll do:
- Take out a mortgage at whatever rates of interest are available at the moment.
- Continue making payments regularly for the next 12 to 24 months, which will help improve your credit scores.
- Refinance your house and get more economical interest rates along with favourable terms and conditions.
Arrange for a Higher Down Payment
Expect to put down a larger down payment when you have bad credit. Applicants with a strong credit score can put down as little as a 5% down payment due to the mortgage being default insured by CMHC or Sagen or Canada Guaranty but those with bad credit aren’t approved by these insurers. All banks that offer mortgages to those with bad credit usually require a minimum 20% down payment.
Take Steps to Improve Your Credit Score
When you get your mortgage with bad credit, you will receive advise from the mortgage broker as to how to repair your credit. The agent will give advise as to which term to take depending on the approximate time it takes to fix the credit report, the terms offered are usually 1,2, sometimes 3 years. When the term is finished, the mortgage broker will then transfer your mortgage to banks with the best interest rates/conditions. Following examples may be suggested depending on each individual situation:
- Putting down a deposit for a secured credit card.
- Pay down outstanding loans and debts, including credit cards.
- Don’t give up your cards, but make sure to make payments before the due dates.
- Don’t take any new loans or credit unless you have less than 2 trades, you need a minimum of 2 for approval for banks with the lowest rates.
- Pay off utility and all other monthly commitments before the due dates.
