How to Secure a Mortgage in Ontario if You Have Bad Credit
Debt and bad credit are an unfortunate reality for many Canadians and often get in the way of homeownership. We’ve all slipped up financially at some point, whether as teens struggling to pay a phone bill or as adults facing significant fiscal challenges. Whatever the cause, your credit history shouldn’t haunt you and weigh you down, crushing your dream of owning a home.
Unlike big banks, mortgage brokers understand the human side of debt and bad credit. While banks may look at the numbers and see applicants as risky borrowers, mortgage brokers offer a broader perspective. They’ll look at a borrower’s history and current financial situation to find a reasonable solution. Significant life events can throw anyone off, leading to a loss of income and debt accumulation over time. And when this happens, it becomes increasingly more difficult to pay off debt.
But there are ways to boost your credit and even secure a mortgage or refinance your home. Contact your mortgage broker about bad credit mortgages in Ontario to start working toward better credit and getting that new home.
Defining Bad Credit: What is it, Exactly?
In Canada, credit scores are quantified as a number between 300 and 900. Some lenders consider a score of 680 or higher to be good, while others see 720 and up as excellent. It’s important to note that numbers may vary, depending on the lender you’re working with. Most brokers use Equifax Canada to report on scores, and Transunion Canada is also a common option.
If you don’t have any credit, then you will need to build your credit in order to have good credit. But it takes some time to build good credit, so you will have to spend about a year making regular payments on time and paying off a loan, a line of credit, and/or a credit card.
Your credit score includes (in order of influence):
- Your payment history (35%)—how recent, frequent, and severe your missed payments are;
- How much you currently owe (30%);
- The length of your credit history (15%)—the longer, the better;
- Your credit mix (10%)—the different types of credit you have (credit cards, student loans, etc.); and,
- New credit (10%)—how many new credit accounts you have.
Please note that this isn’t an exact breakdown of your credit score. The algorithms used can put more weight on certain factors, depending on credit history.
In some cases, you may have a good score, but what is on your credit report can still prevent you from being approved for a mortgage—i.e. bankruptcy, foreclosure, or short sale. However, working with a mortgage broker can help you tackle your credit history and get you that house.
How to Boost Your Credit Score
Your mortgage broker will be happy to give you advice to boost your credit score, and will check your credit score upon your request. It’s important to note, though, that pulling a credit score will have an impact on your score. However, if you’re checking the score for the same more than once within 45 days, the impacts won’t accumulate.
Then, you and your mortgage broker can review all the data and look for discrepancies—known as false hits. Sometimes creditors make mistakes when reporting, so contact the lender to have the error fixed. You must notify the lender who made the mistake, and they must then provide a letter to the reporting agency to confirm their error.
But the best way to improve your credit score is by making consistent payments on time. If you do this, over time, your credit score will increase. Other ways to improve your credit score include:
- Maintaining low credit card balances; and,
- Not opening new accounts (applying for more credit) as each one will shorten the average length of your credit history and add more inquiries.
How to Buy A Home With A Bad Credit History
If you boost your credit score enough, your mortgage broker may be able to access the best rates and term mortgages with banks, credit unions, or mortgage companies. But if not, your mortgage broker can help you secure a mortgage through an equity lender or private lender with rates starting at 0.5% higher than best rates and terms. Private lenders look at mortgages as investments, and have less-strict rules for borrowing compared to big banks. So even if your credit isn’t great, you still have a chance to get that mortgage you’re after.
Mortgage brokers won’t shut you out because of your credit history. Instead, they will work with you to find the best course of action to tackle your bad credit. Talk to your mortgage broker about bad credit mortgages in Ontario. Your mortgage broker will be happy to provide sound financial advice to help you boost your credit and get you closer to owning a home.