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Wednesday, January 7, 2015

How do I get a mortgage with bad credit?

Low credit home loans
Credit scores affect mortgage borrowing costs
By Clinton Haglund

If you have been denied a mortgage, or are simply worried you won’t be eligible for a mortgage due to your bad credit, don’t despair. Having bad credit will not prevent your from owning your own home -- you can get a mortgage with bad credit.

Mortgages and your credit score

Your credit score is the most important factor when applying for a mortgage. A good score could secure a mortgage at low rates, but a bad score will mean you won’t be able to get a mortgage from the prime lenders. You should know your credit score, especially if you suspect you have bad credit.

Finding out your credit score

Your credit score is calculated by a credit bureau – TransUnion or Equifax in Canada. Your score is a number from 300 to 900, based on your credit report. Your credit report is a summary of your entire financial history: your employment history, your credit account history, and your banking history.
You can apply for a copy of your credit score, for a fee.

Getting a mortgage with bad credit

A score of 680 and above usually means you’ll be offered a mortgage from a prime lender, or ‘A’ lender. These A lenders offer the lowest mortgage rates.

Trust companies and other financial companies cater specifically to people with lower credit scores. Also known as bad credit institutional lenders, these companies offer typical rates of 4.5 to 5.5 per cent.

A score of 600 or less is considered a bad credit score. You may still be able to get a mortgage, however, even if your score is in the 550 range and that is very important too. Private lenders, including private companies and private individuals, offer mortgages to people with these bad credit scores. However, because you are deemed a risk of non-repayment, mortgage rates could be as high as 15 per cent.

You can improve your chances of being offered a better mortgage rate, even if you have bad credit, if you have a significant down payment. You may also have to have a co-signer for the loan. If you have bad credit, but a confirmable, dependable source of income, you will improve your chances of securing a mortgage at better rates.

Restoring your credit

If you do have bad credit, you should take steps to restore it as soon as possible. If you improve your credit score you may get better rates when your mortgage term expires and you negotiate new terms. The only way to restore your credit score is to ensure you pay all your bills on time. Revolving accounts like credit cards, and fixed loans like mortgages and car loans, will help you restore your credit. However, you must not miss any payments. Missing payments will make your credit score even lower. If you suspect you can’t make a payment, make sure you contact your creditor beforehand. Hence, before looking for any mortgage it is good to check if you have any credit problems. 

About the author: Clinton Haglund who rose from Toronto in the year 1981. He completed his Masters in Business Administration from Rot man school of management in Toronto. He had a great passion to business and currently he is running a business in Ontario. Clinton has a knack for helping ambitious business people and to determine how they can get more with less by focusing and refining their business strategy and processes. For more updates you can follow him in twitter @clintonHaglund.

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