It’s normal to have experienced financial trouble throughout the course of your lifetime. A divorce, unemployment or bankruptcy is just some shadows of your past, which can influence your chances of getting the finance required to purchase a home.
This is because a poor credit history lowers your chances of getting a mortgage. While it may be difficult to get approved with poor credit history, it isn’t impossible. Your chances may be improving because the mortgage industry in Canada is becoming more competitive. Take our advice on how to get a mortgage with poor credit and consult a mortgage broker if you’re in a similar position. Mortgage brokers are in contact with various lenders who are open to negotiating a mortgage with bad credit if the homebuyer qualifies by meeting certain requirements.
The Process Of Approving a Mortgage with Poor Credit
Before they agree to support a mortgage with poor credit or refinancing a poor credit mortgage, lenders check the applicant’s current financial situation and that they are secure. Although other qualifications differ between mortgages, some criteria are common.
Increased Minimum Down Payment
Applicants with a good credit history can get a mortgage with a down payment as less as 5%. Bad credit means that this value increases to 15% of the overall figure that the home is worth. The value of the down payment and chances of getting a mortgage are directly proportional so having a higher down payment increases your chances of qualifying for a mortgage despite your poor credit history.
A Co-sign From A Reliable Source
Whether you’re trying to get a mortgage with a bad credit history or applying for a refinance, it is strongly recommended that you consider asking a peer or a member of your family to be the co-signer of your application. The person you chose should have a good credit history and must be reliable as well. This is because even if you meet all the other requirements, lenders need to guarantee the mortgage through a co-signer because of your bad credit status. This keeps the lender well protected because in the case that you fail to make payments the co-signer of your application becomes responsible for your mortgage.
Property Value That Is Appraised By A Professional
In the case that you become unable to fulfill mortgage payments for your home, the possession of your property goes to the lender who will sell it to retrieve their initial investment. For this purpose, applicants are required to get the value of their home appraised by a professional. This is to prove to the lender that the property you aim to buy has a higher value than the amount of the mortgage. This proof is submitted to the lender prior to any approval of the mortgage.
Proving That Monthly Income Is Adequate
Whatever mortgage you’re applying for, it’s a given that lenders want to know if you have a steady income. The purpose of it is to make sure that applicants are able to pay back the mortgage without any hindrances. To get this information, lenders will analyze the Gross Debt Service Ratio of applicants. This information holds the figures about how much of your salary will go into paying the mortgage and other utilities every month. Applicants are advised by mortgage brokers to keep the GDSR lower than 35%.
Best Poor Credit Mortgages
When it comes to home loans there are various options available for those who have a poor credit history and have been denied any financing from leading banks. Even though you don’t qualify for the lowest mortgage payment rate and down payment from a renowned lender, there are others that can help. Many lenders that work institutionally and privately are specialized in advising mortgages to individuals with a poor credit history.
One of the lenders that specializes in helping Canadian consumers with bad credit is Home Trust and is featured in our mortgage broker section on CompareMyRates.ca
Other Crucial Factors
There are certain credit scores that fall into a category where the individual can qualify for a mortgage from a prime lender or one that is institutional and specializes in bad credit loans. This range is termed as being in-between and in these cases, lenders evaluate other factors.
- Source Of Income. A credit score that falls within 600 and 700 is still accepted by a prime lender if you can prove that your income is earned through a dependable source. There are two broad categories
- A confirmable income is that which is most preferred by lenders. You can prove that you earn a confirmable income through a Notice Of Assessment.
- Non-confirmable incomes are mostly found among individuals who are self-employed or their salaries are based on commission. In such a situation lenders work with an estimated value of your income that is based on an average value of what similar employees earn.
- The Down Payment (Purchase). If your down payment is a higher percentage of your property value, then you have better chances of qualifying for a mortgage with your poor credit history. A high down payment shows lenders that you’re capable of saving money and that the property in question is important to you.
- Home Equity (Refinance). In the case that you want to refinance the mortgage, lenders have the ability to allow an increase in the mortgage to an 85% ratio of the loan to the value of the property. Nevertheless, it is more likely that they would agree to lend when your property has more equity. This is because the mortgage is supported by a secure asset.
- Property Worth and Type. This is established as an essential factor that influences you being approved for a mortgage by a private or bad credit lender. Lenders that specialize in working with bad credit require that applicants undergo a rigorous appraisal process and have a good rating before they can be accepted. This is because other elements such as the credit score pose a threat to their investment.
Although individuals with a better credit history are offered better affordable rates, higher rates of interest aim to compensate a lender for their client’s bad credit score. This lowers the risk, whether the lender deals privately or is institutional. Nonetheless, lenders that handle clients with a bad credit history are not less reliable than others. So you can ensure that they will provide you with a good mortgage solution that will meet your requirements.