It can be challenging to buy a house with bad credit, but not impossible. We share the tricks you can use to buy your next house, even with a credit score as low as 500.
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How much down payment you will have to come up with, what mortgage rate you should expect, and which lender type you will use for your mortgage are just some of the other few mortgage approval variables that are tight on your credit score.
In mortgage financing, credit scores below 600 to 500 are considered bad credit. Even with a high credit score of 600 and above, you may still be considered harmful for a mortgage if you have active public record items like bankruptcy, consumer proposal, collections, and judgments.
Read on if you want to get approved for a mortgage with a bad credit score.
This guide contains everything you need to go through your home financing process with bad credit like a pro.
But let’s start by elaborating on who is considered a bad credit client for a mortgage loan before discussing how to improve your credit and how to get approved with ease.
A credit record combines your credit score and your credit history. It shows how you have managed debt obligations in the past. Lenders use it to assess how you will manage new debt obligations.
A credit score is a three-digit. This number is a snapshot of your creditworthiness at a point in time.
A credit score is not a fixed number. The number changes as your credit activities change. Your credit score today may not be the same as your credit score last week, a week from now, or a month from now. Generally, a credit score below 600 would be considered a bad credit mortgage.
On the other hand, is your credit history? It is a record of all your credit activities over a while. Here, the lender can view how you have managed your past debts.
Your credit record captures your payment character over time and your registered public record debt obligations. Your credit score will reflect your credit history.
You are likelier to have a lower credit score if you cannot pay debts in time, have active or recently closed public records, and have high credit inquiries.
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If you’re planning to buy a house with a bad credit history, you should first talk with a Bad Credit Mortgage Broker to determine your options.
Bad Credit Mortgage Brokers can access specialist lenders offering bad credit mortgage loan products.
Most people mistake talking with a real estate agent before determining whether they will even qualify for a mortgage loan to pay for the house.
Currently, with new construction properties popping up here and there and stricter government regulations on mortgage lending, the problem is no longer finding the right property; instead, it’s qualifying for a mortgage loan.
A Mortgage Specialist will complete a preliminary review of your credit situation and help secure pre-approval. That assurance is all you need at this stage of the process.
The Bad Credit Mortgage Specialist will conduct a preliminary assessment of your credit and income situations to determine the maximum mortgage amount you’re eligible for at your current income and credit status.
The amount you will have to put down as a down payment and the approximate interest rate range for which you will be approved.
A 20% down payment is not a small amount, especially when Ontario’s average property value is shy of $600K.
You will be required to put down $100K as a down payment for a $500K property.
Other government programs assist you with the required down payment for your home purchase.
It will take planning and financial discipline to save $100K for your down payment.
Once you’ve checked off the two points above from your first-time homebuyer checklist, you can then go out for your home shopping spree.
We have noticed that clients who follow this formula emerge victorious and stress-free.
Neither you nor your real estate agent will want to waste time searching for homes you might not qualify for.
Once you settle on a dream home, we’ll submit your official mortgage loan application to secure the funding to help close your house purchase.
One advantage of using a broker for your mortgage loan is accessibility.
Especially with a bad or poor credit history, the probability of getting a mortgage with your bank is slim.
Mortgage brokers have access to several non-retail mortgage lenders.
Most of these lenders have flexible lending policies compared to your standard bank.
However, you will most likely access these lenders’ mortgage products through a mortgage broker or agent.
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When applying for a mortgage loan with a bad credit history, these are some things to consider.
Lender Fee and Probably Brokerage Fee: Most bad credit mortgage lenders will charge a lender fee of 1% to 3% of the approved mortgage loan amount. Brokerages will also charge a small fee for sourcing, securing, and managing your loan application.
With all that said, let’s round up what we have discussed thus far.
Your credit history is essential information that mortgage lenders will use to determine your creditworthiness. That’s why it’s no surprise that you were declined a mortgage loan to buy your dream home because of your poor past credit.
Lenders use your past credit history to justify your creditworthiness for one more credit trade.
Even with all the negative impacts of bad credit history, the good news is that you can still buy a home with one.
You’ll need a Bad Credit Mortgage Specialist to access products from lenders.