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Bad Credit

Did you have some issues with your money when you were younger? Perhaps you went through a messy divorce, suffered a small business failure, or simply hit a patch of rocky employment?

Whatever the case, your credit has suffered and you're finding it next to impossible to secure financing for your new home purchase. So, what's a hopeful homebuyer to do?

While it's difficult to get bad credit mortgage approval, it isn't unheard of. In fact, it's becoming more and more common as the Canadian mortgage industry becomes increasingly more competitive.

If you have poor credit, take our poor credit mortgage advice and consult with a mortgage broker. Mortgage brokers have access to hundreds of lenders who are willing to negotiate a bad credit mortgage, providing the applicant meets certain qualification requirements.

Poor credit mortgage approval process

Before a lender will agree to endorse a bad credit mortgage or bad credit mortgage refinance, they must first assess the applicant to ensure they are not a financial risk. Bad credit mortgage qualifications vary by company. The following area a few common criteria:

1) A higher minimum downpayment

With perfect credit, it is possible to get a mortgage with as little as 5% down. If you have bad credit, mortgage lenders will most likely increase this minimum to 15% of the value of the home. The higher your downpayment, the more likely it is that you will qualify for a poor credit mortgage.

2) Proof of sufficient monthly income

In order to qualify for any mortgage you must be able to prove that you have enough income to repay the money and that you're financially capable of handling a home mortgage. In order to figure this out, lenders will want to review your gross debt service ratio (GDSR), which is the percentage of your gross monthly income that can be used for housing costs (mortgage payment, utilities, and property taxes). Mortgage brokers tend to advise bad credit mortgage seekers to keep their GDSR at less than 35%; less than 30% is even better.

3) A professionally appraised property value

If for some reason you are unable to make the mortgage payments on your property, the lender will take possession of the property and sell it in order to recover their investment. Therefore, before a lender will give you a mortgage, they will require proof from an appraiser that your potential home is worth more than the mortgage amount.

4) A reliable co-signer

If you're trying to get funding for a bad credit mortgage refinance, it would be in your best interest to ask a friend or family member who has good credit to co-sign on your application. Even with a good downpayment and steady income, mortgage lenders often require a co-signer to guarantee a bad credit mortgage. A co-signer gives the lender added protection, but it will also mean that the co-signer is now responsible for the mortgage if you are unable to make the payments.

If you have bad credit, no credit, or have filed bankruptcy in the past, not all hope is lost. Contact the mortgage brokers at Family Lending for more bad credit mortgage advice or apply online to learn how you can become pre-approved for a bad credit mortgage or bad credit mortgage refinance.

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