How to get a Mortgage Started with Bad Credit
One out of eight Canadians will file for bankruptcy or settle with creditors. Needless to say Canada mortgage has seen its fair share of potential homeowners who have bad credit.
It will be difficult for you to acquire a mortgage loan if you have a bad credit history. Fortunately there are still ways through which you can have a roof over your heads nonetheless.
Non Traditional Sources
Banks do not lend to people who have a bad credit history. If you happen to be one of them you have your work cut out for you. In cases such as these turning to non traditional lenders will be your best course of action.
Down Payment Requirements for Bad Credit
Lenders will be more willing to oblige you if you put down a 20% down payment of the total value of the property. The reason why is simple. Such an amount would reassure them that there is less risk involved. You would be able to acquire the mortgage since a lender will be able to issue it at the lowest possible rate.
Your down payments, credit and job history will have an equal impact on whether you will be able to apply for a mortgage loan in the country.
However, potential homeowners who have a bad credit history seldom have the cash to put down such an exorbitant sum of money upfront. In fact such a feat is also problematic for the most qualified buyers.
Mortgage with down payments that come up to less than the property’s value (less than 20%) involve high ration loans. Such loans also require the approval of the Canadian Mortgage and Housing Corporation (CMHC).
Lenders also charge higher interest to applicants that are granted BC (bad credit) mortgages since the latter are considered to be high risk. An experienced mortgage broker will work with you to ensure that the interest rate your lender charges is a low as possible.
However it is better to settle for a down payment that is more than 20% of the property’s actual value since doing so will help you achieve preferable rates. You can also achieve payments that are less than 20% if you have a steady income.
You will still be eligible for a mortgage loan after bankruptcy if you have a reasonable explanation for your lack of funds. For example, a lender will sympathize with you more if your bankruptcy was caused by a medical emergency. In other words, if your funds were depleted because you spent too much time shopping no lender would oblige you.
A bankruptcy proposal requires that you earn a lender’s trust by having at least two credit accounts. Both of them also need to have a two year track record. For instance in order for lenders to take you seriously you might need to have a $1000 or $2000 credit limit.
It may be possible to apply for a Canada mortgage with a bad credit history, however since your options are limited it is best that you do your research before proceeding any further.