Your chances of acquiring a mortgage may be reduced if you have low credit, and some mortgage lenders may not even let you apply if you don’t meet their minimal credit score requirements. 

A credit score below 600 is typically seen as having poor credit. Bad credit can be quite expensive to have since lenders who are prepared to lend to customers with poor credit will charge you higher rates and fees. The normal term duration for a negative credit mortgage is 6 months to 2 years since they are typically transitory and used as a last resort. During this time, you’ll need to strengthen your credit so you can apply for a mortgage from more common sources for your next loan. Sometimes, you may be able to cosign with someone with higher credit and a more stable financial background to help you get a mortgage from a traditional lender.

The good news is that a bad credit score does not mean you will be unable to obtain financing to find your dream home or finally get that long-awaited home ownership under your belt.

Your Credit Score

Your credit report is used for a lot of different reasons in life, whether it be applying for a loan, credit card, or car lease,  or even looking for insurance among other reasons. When submitting a mortgage application, this is the same. Your credit history and credit score will be reviewed by your mortgage lender to determine how well you deal with credit. Your lender will carefully review your credit history if you have a troubled history with other lenders due to late payments or even defaulting on prior loans.

Mortgage lenders take lending hundreds of thousands of dollars to someone extremely seriously, which is why having a strong credit score is crucial. Your credit score is based on your credit report, which includes your detailed credit history: payments, debt balance, credit limit, and age of all credit accounts, as well as the type of debt, any bankruptcies, etc.

Bad credit information remains on your credit report for six years in Canada. Any missed payments, consumer proposals, past-due accounts, or bankruptcies negatively impact your credit score. Bankruptcies will remain on your credit report for at least 7 years in most provinces.

Good credit information, such as on-time payments, will remain on your credit report forever. So, being responsible for your debt is incredibly important.

How to Get A Bad Credit Mortgage

Most traditional lenders (the banks) require a high mortgage score, at least 600, to qualify for their mortgage products. When it comes to Private Lenders and B Lenders (credit unions), they do not have this requirement, which means these are who you go to for loans if you have an unsatisfactory credit score.

Bad credit mortgages are also known as subprime mortgages and are often the only alternative you can get if you are unable to qualify for a loan from a bank. Private lenders are often very flexible in their lending requirements and are less strict on what they require you to have. Thus, it is much easier to get financing from them if you don’t have the best financial situation.

Private Lenders base their loans on your home equity. If you default, your home is up for collateral and they can use a power of sale to recoup the loan.

The downside to subprime mortgages is higher fees and interest rates. Since your loan application is a high risk, the lenders want to ensure they recoup the money back. They also require a large downpayment or home equity to secure the loan.

Once you get a bad credit mortgage, you need to have a plan in place to improve your credit score so you can easily transition to less costly lenders at the end of the term. Thus, bad credit loans are great for short-term aid to help get the financing you need, but it does come with very high-interest rates.

Conclusion

There are plenty of bad credit lenders available that will grant you the financing you need to purchase your home. Working with a mortgage broker can help you secure mortgage financing to buy your first home.

The Mills Team will help you shop around your mortgage application to our network of lenders to find you the best rates available and help you improve your credit score so you can move on to more traditional lenders as soon as possible.