How To Buy A House With Bad Credit in Canada

Credit is one of the tools you get to use to gain access to many financial benefits. For example, a high credit score lets you gain reasonable interest rates on credit products like car loans, credit cards, and mortgages. But what happens to those financial possibilities when you have a lower credit score? Now, many people wouldn’t have a problem not being able to lease or own a car. But Canadians have just one goal they want to attain in life: own a house to raise their family.

However, the prospects of that happening look slim when you have a bad credit score. So, read on to learn more about buying a house with bad credit.

Tips to secure a mortgage with bad credit in Canada

If you have bad credit and there is no mistake on the credit report that might be bringing the score down, you can secure a mortgage following the given tips.

  • Go to a reliable mortgage broker

When you have bad credit, a mortgage broker might get to negotiate the loan on your behalf. Licensed professionals can secure the mortgage for their clients from several lenders. So, they completely understand the ones that can help borrowers with similar credit scores as yours. The right mortgage brokers will get you in touch with lenders who have flexible requirements and help in repairing the credit score.

  • Have a co-signer for the mortgage

Lenders need to ensure that your mortgage payment is completed right on time. Thus, if the credit history isn’t good enough, you can provide reassurance by getting someone with a good credit score, like a parent or sibling, to co-sign the mortgage. So, your co-signer(s) will be in line if you cannot make the payments. Of course, both you and the co-signer need to be comfortable with the arrangement and fully understand the risk.

  • Increase your down payment

Some private lenders are okay with issuing a bad credit mortgage (also known as a high-risk mortgage), but only to the borrowers who can make a down payment of a minimum of 20 percent of a home’s purchase price. As the average home price in Canada now stands at $586,000 (or higher in larger centers like Vancouver and Toronto), the 20 percent down payment can possibly be in the six-figure area (i.e., $117,200) on an average.

You might be thinking, “why would someone have bad credit to start with if they could save up over $100,000?” Well, you are not wrong. However, the lenders are looking for profit, and your credit score is undoubtedly making you look like a bad risk. Thus, they can’t be blamed if they want the reassurance of that 20 percent equity in the home to secure the mortgage.

Other tips for purchasing a house with bad credit

  • Remain patient

Though taking some time to rebuild the credit will work for you while searching for the mortgage, remaining patient is particularly crucial for those who have gone bankrupt or had a consumer proposal.

Most of the conventional lenders (banks and any other financial institution, conventional mortgage brokers, and so on) are possibly not even going to approve you for a two-year mortgage after the case gets discharged. Thus, it is best to take some time to enhance your finances and improve your credit scores.

  • Finding stable employment

If you have a suitable income and good credit, even as a self-employed or commission-based worker, the lenders will not refuse your mortgage. But when you do not have good credit, have gone through bankruptcy or consumer proposals, lack of stability in your employment history will only make the lender see you as a risky investment. Due to that reason, it is best to look for a stable source of income, particularly if you want to work with a lender.

  • Look into private and subprime lenders

If you can’t wait till the credit gets rebuilt, you might need to go with lenders that deal with the bad credit borrowers. When the score is below 600, you may have no choice but to go for private lenders. If the credit score is a bit higher but not excellent, you might qualify with bad credit institutions or trust companies.

  • Save for larger down payments

Due to the decreased prospects of securing the mortgage with a lender, a better idea would be to save money by making a sizable down payment. Of course, it will help you qualify with subprime lenders if you want, but it is also a mark that you are improving your finances. Moreover, it shows that you are not a significant financial risk for the prime lenders you get to apply to within the near future.

A larger down payment makes the mortgage payment period much shorter, or you can go ahead and make small payments to amortize the high-risk mortgage for an extended period.

  • Work to raise your credit scores

It is another aspect where patience is genuinely considered a virtue. You will need to take some time to make an effort to rebuild damaged credit scores. To do that, you need to be responsible for the financial commitments and credit products you have. It means paying your bills in full and on time, irrespective of what the amount is.

When you cannot afford to pay your complete credit card statement, make sure you can at least pay the minimum monthly payment. In case you do not qualify for unsecured credit cards, it is better to use a secured credit card for the time being. But it is crucial to not apply for a lot of new credit right at the start because hard inquiries make your credit scores drop, which might show you are still facing debt problems.

Endnote

As you can see, you can still purchase your dream house if you have bad credit in Canada. You will just have to follow the proper steps as mentioned above.

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