Many Canadians are saving a lot of money to buy homes in the next two years. Although a minority can make full payments upfront, most are saving money to make sizable down payments to help them get better mortgage rates.
However, even if you have the best real estate agents in Toronto, buying a home can be challenging if you have a bad credit score.
What Is a Credit Score?
Your credit score is the financial institution’s rating of your likelihood to pay back your debt or creditworthiness. It helps banks, lenders, and the like to make informed decisions whether they can lend you money or not.
The Fair Isaac Corporation (FICO) devised the current credit score system. This system designates a score to individuals based on several factors. Some of them include:
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What Is a Good Credit Score?
Your credit score can lie between 300 to 850. Your credit score greatly affects your financial life. That is why as a general rule, you should aim for a higher credit score because a higher score means that you are trustworthy and pay your debts on time.
The definition of a “good enough credit score” differs from lender to lender. However, most lenders would use the FICO score range.
Excellent: 800 to 850
Very Good: 740 to 799
Good: 670 to 739
Fair 580 to 699
Poor: 300 to 579
What Is Considered a Good Credit Score for Mortgage Applications?
At the very minimum, a credit score of 650 is passable. However, some of the local real estate agents would strongly advise you to hit at least 700.
If you don’t know your credit score, online resources can help you request that information. Don't worry if your credit score is below 650 because there are still ways to get your score up.
How to Get a Mortgage with a Bad Credit Score?
Getting your mortgage approved even with bad credit is a challenge but entirely possible. You may have to endure higher interest rates, but you can own your home after making all your payments. Here are some of the things you can do to get a mortgage despite your score.
Improve Your Credit Score
You can improve your credit score by working on it for at least six months. For six months, before your mortgage applications, you need to pay your dues on time, request a credit limit increase from your bank but not use it, and avoid making new credit requests or loans.
Look for Alternative Lenders
Most people would turn to banks when they are applying for a mortgage. But if your credit score is not the best, you have to look for other lenders, such as credit unions, trust companies, subprime lenders, and private lenders.
Make a Larger Down Payment
You will be required to pay a down payment anywhere from 5 to 20 percent depending on the property’s purchase price. But if you have a bad credit score, you can convince lenders that you can pay on time if you give more than the minimum down payment required.
Add a Co-Signer
Adding a co-signer to a mortgage is similar to getting someone to vouch for your capacity to pay on time. However, if you failed in your payments, adding a co-signer also means that the lenders can demand that your co-signer pay for it on your behalf.
Can you buy a home with bad credit? Yes, it is. But before you call your local real estate agents, you first have to do a few things. You must get your finances in order, work on improving your credit score, search for an alternative lender to approve your mortgage, save for a larger down payment, and look for a possible co-signer.
If you need the best real estate agents in Toronto, look no further than Sold With Presta. We are trusted agents in the business and have been proudly helping aspiring homeowners in the Greater Toronto Area find their dream home for years despite having bad credit. Contact us today