Do You Know How to Get a Bad Credit Home Loan
A blemished credit history is one of the largest obstacles prospective Edmonton homeowners face when shopping for a mortgage. The good news is that having a less-than-perfect credit score doesn't necessarily mean you can't purchase your dream home. Here are a few steps you can take to obtain a bad credit home loan.
Check Your Credit Report
Lenders use your credit score, which is a number between 300 and 900, as a benchmark to determine how you have handled credit in the past and how likely you are to repay a home loan. You can check your credit score by requesting a copy of your credit report from Equifax or TransUnion. Keep in mind that there is a fee involved in using these services. Alternatively, you can use a free credit report service like Mogo Mortgage, or have your mortgage broker obtain a free copy of your credit report.
Research Bad Credit Mortgage Lenders
A credit score within the 600-700 range is enough to obtain a mortgage from prime lenders. If your credit score is below 600, you'll need to consider subprime lenders. These lenders, also referred to as "B lenders", are more likely to approve financing for individuals with less-than-perfect credit. If you've declared bankruptcy within the last two years, however, you may not even be approved for a bad credit home loan through a subprime lender. In this case, a bad credit home loan can usually be obtained by working with a private mortgage lender.
Consider a Larger Down Payment
While your credit score is an important factor in determining your ability to repay a bad credit home loan, lenders will also look at other criteria to assess your credit worthiness. One way to reduce your risk in the eyes of lenders is to offer a much larger down payment than the standard 5% – say, 20% or even 25%. You will likely need at least 20% as a down payment, if you have bad credit. Offering a larger down payment is a great way to secure a bad credit home loan with a low interest rate.
Be Prepared to Pay Higher Mortgage Rates
Obtaining a bad credit home loan through subprime and private lenders often means paying a much higher interest rate than you would by working with a prime lender. If your mortgage payments are made on time, though, you should be able to obtain a lower mortgage rate when you renew your home loan.
If you're struggling to get approved for a mortgage due to a poor credit history, a bad credit home loan may be just the right solution for you. Contact us today for more information about how we can help you purchase the home of your dreams.