How to Finance a Home with a Poor Credit Score
Posted in Mortgage News:
Do you dream of owning your own home, but worry that a poor credit score will make that dream impossible? Fortunately, even if your credit is bruised or less than perfect, there are still options available and while you may not have access to as many mortgage products as someone with excellent credit, there are solutions worth exploring.
The best way to understand your mortgage options in detail, If you have a poor credit score, is to work with a mortgage broker. Brokers operate independently from the big banks and have extensive knowledge of the local market and a wide range of lenders—including those who specialize in bad credit loans.
They often have access to mortgage products that aren’t publicly advertised, which could improve your chances of approval and help you secure a more manageable rate.
Buying a Home Costs More with Poor Credit Score
If you’re applying for a mortgage with a low credit score, it’s important to understand that your costs will likely be higher. Prime lenders require strong credit to qualify for their best rates. With poor credit:
Having all of your finances in one place might feel convenient, but it doesn’t guarantee that you’ll receive the best mortgage rate or product for your needs.
- Your interest rate will be higher
- You may need to pay a broker or lender fee
- The terms may be more limited initially
However, working with a broker is often worth the investment. Once you’ve made consistent, on-time payments on your mortgage, you may be able to refinance later at a lower rate, especially as your credit score improves.
What Credit Score Do You Need for a Bad Credit Score?
If you’re applying directly to a major Canadian bank, you generally won’t qualify unless your credit score is at least 600.
Other options include:
- Trust companies – typically require a minimum score of around 550
- Private lenders – often have no minimum credit score, and will base approval more on the value and equity of the property
While banks rely heavily on your credit history, private lenders take a more flexible approach, focusing on the property and overall risk. Many believe that everyone deserves a chance at homeownership— regardless of past credit mistakes.
Tips to Improve Your Mortgage Approval Chances
Here are a few steps you can take to strengthen your application and increase your chances of getting approved:
1. Review Your Credit Report
Check your credit history for errors or inaccuracies that may be hurting your score. Mistakes are more common than you might think. You can request a free copy of your credit report from Equifax or TransUnion.
2. Consider Debt Consolidation
If you have multiple credit cards or loans, consolidating your debts into one payment can help lower your debt-to-income ratio, making you more appealing to lenders.
3. Choose a Property with Equity
Private lenders typically want to see that the property has positive equity. This reduces their risk—if you default, the property could be sold to recover their investment. Choosing a home with solid equity is an important consideration when buying with poor credit.
While raising your credit score is not something that will happen overnight, it is possible to get a first time mortgage by addressing past credit issues and working with a knowledgeable mortgage broker, you can get on the path to homeownership—even with bad credit.
It’s important that when you do start looking for a home with a poor credit score, that you select a property with enough equity to cover the loan. Private lenders will want to reduce the risk for them should you go into default, by ensuring that the home has positive equity; they can then sell it to recuperate their losses.
Call us at 403-460-7707 or book a consultation online for friendly, expert advice.