Let’s be honest, bad credit can happen to anyone, even good people can end of with bad credit with no fault of their own. With all that life throws at you, it can become downright difficult in maintaining good credit, especially if there are some circumstances beyond your control such as family or financial emergencies. Having bad credit can become a roadblock and affect your chances of getting a loan approved, so this begs to ask the following question, how to get a mortgage with bad credit.
Since it is a well-known fact that having bad credit can hurt your chances of getting a mortgage, this especially holds true when we are speaking about getting a mortgage from the banks. This is because banks have a minimum credit score requirement and if you are not able to meet the minimum score there will be a high chance that your mortgage will not be approved. The minimum credit score requirement that the bank lenders have set out is to have a credit score above 600.
That sounds great but what can you do if you don’t meet this credit score requirement, what if your credit score is below 600 say it is at 580 or below? Then asking how to get a mortgage with bad credit becomes a real point of emphases, and what mortgage options do you have available to you if you have bad credit?
Well, there is good news, you do not need to stress out over your bad credit situation because our team at Brampton Mortgage Broker has many years of experience and the knowledge in obtaining mortgage approvals for clients with bad credit. Our team has put together this post to go into some details on how to get a mortgage with bad credit. Keep reading on to the end, and if you have any question regarding your situation, make sure you reach out to our team so we can help you out with your bad credit mortgage.
How a Credit Report Impacts Your Mortgage
To understand how a credit report impacts your mortgage, we will need to briefly discuss what a credit report is. What is a credit report? Well, simply put a credit report is an outlined report that contains your credit history that is graded on a numeric scale. When it comes your credit report, there are two companies also known as credit bureaus that generate these credit reports. The two bureaus are called Equifax and TransUnion.
For the mortgages we approve for our clients with bad credit, we utilize the Equifax credit report for clients. As this is the preferred credit report for majority of mortgage lenders.
It is best to review your Equifax credit report and check for any mistakes and errors in your credit report. You can obtain a copy of your Equifax credit report by visiting the Equifax website or you can get a copy from the Borrowell website. Here are the links to each of the website so you can choose which report you want.
- Equifax Credit Report Website – click Here
- Borrowell Credit Report Website – click Here
By reviewing your credit report on a regular basis, you will be able to ensure that credit score is up to date and reported accurately which plays a major role in you obtaining a mortgage. There are a few areas of your Equifax credit report that mortgage lenders look at in detail. These areas are, your Equifax credit score, payment history of your credit, utilization of your credit and credit inquires. Below we will look into these areas of your Equifax credit report below so you can get a better understanding of the importance of your credit report.
Equifax Credit Score
What is an Equifax credit score? An Equifax credit scores is a range of numbers that provide a grading score for your overall credit report. These numbers range from as low as 300 to as high as 800 and above. The higher your credit score rating the better. Below is a chart to show you a break down of the ratings for your Equifax Credit Score.
- Excellent rating is having a credit score above 800+
- Very Good rating is having a credit score between 740-799
- Good rating is having a credit score above 670-739
- Fair rating is having a credit score between 600-669
- Poor rating is having a credit score between 300- 599
How does your credit score impact your mortgage approval when you have bad credit? Well, when it comes to your mortgage, some banks will approve mortgages for individuals with a minimum credit score of 600, which is referred to a fair credit score. However, majority of banks will want a minimum credit score of 670+ which is referred to a good credit score rating. But what do you do if you have a credit score of 600 or below? If your credit score is below 600 then you will need to get a bad credit mortgage. Just because you have a credit score of 600 doesn’t mean you can’t get a mortgage from a bank. It just means in your current situation you will need to get a bad credit mortgage and then work on repairing your credit score so you can be approved by a bank when you credit score is above 600.
What is payment history? Payment history is the record of the payments you have made on the debt you carry. All payment made or missed are reported to your credit report and have an impact your credit score rating.
Late payments, missed payments, collections, and bankruptcies will have a negative impact on your credit score and lower your credit score. It is important to note that the damage done by continuous late payments, missed payments, collections, and bankruptcies can take a long time to reverse the impact it leaves. By continuing on this path, you will end up with bad credit and, often at times it can even take up to a few years to repair the damage.
However, by having a history of making payments on time, you will impact your credit score in a positive way. But if you have a history of bad credit and you suddenly start to make payments on time, then you can start to see your credit score increase over a period of a few short months to a year. This because you need to establish a history of continuous on time repayment for your score over a stable period of time, like a year or two.
How does payment history impact on your mortgage approval with bad credit? Well, when it comes to your mortgage approval, having a history of late payments, missed payments, collections, and bankruptcies will show mortgage lenders that you are not able to meet payments on your debts and will be very hesitant to approve a mortgage for you. Mortgage lenders such as banks will not be interested in offering you a mortgage as your history of payments are not on time. This will leave an impression on lenders that if they lend you money for a mortgage, you will mostly likely be late or miss payments, as your current payment history shows. So, to avoid any late or missed payments, mortgage lenders such as banks will not approve mortgages for individuals with bad credit.
What is credit utilization? Credit utilization is referred to the amount of credit you are using against the credit limit. For example, if your credit card with a limit of $10,000 and you have a balance of $7,500, then you have a credit utilization of 75% of your available credit.
You want to avoid maxing out your credit limit or getting right up to the limit across all your debts. By carrying a credit utilization of close to 100% available limit every month without bring your balance down, will do harm to your credit score. Over the long run maintaining 100% utilization of your credit limit will cost you a lot of money in interest paid.
There are a lot different views on how much your credit utilization of your credit limit should be, but our team has found that the sweet spot for your credit utilization is to be around 65% of your credit limit. However, the best method If you want to maximize your credit score, is ideally to use as much as credit you can afford to pay off immediately. Which means you want your balance at end of each month to be at $0. This is the best way of utilizing your credit and showing financial responsibility and if maintained for the long run it will help with improving your credit score.
How does credit utilization impact your mortgage approval when you have bad credit? Mortgage lenders want to see if that you are being responsible with your credit utilization and that you are not overextending yourself with unnecessary financial debt. If you have a high utilization across all your debts mortgage lenders such as banks will not be interested in offering you a mortgage. As being overextending on your credit utilization will show you are not being financially responsible with your credit.
What are credit inquires? When it comes to credit inquires, there are two types of credit inquire, a hard credit inquiry and a soft credit inquiry.
Hard credit inquiries are deep drives into your credit report and are registered as hard credit hits on your credit repot. You want to limit the amount of hard credit inquiries as these types of inquiries have a direct impact on your credit score and lower your credit score with each inquiry made. Hard credit inquiries are made when you are applying for a loan, such a car loan, credit card, and a mortgage so a lender can get full understanding of your credit.
Soft credit inquires on the other hand do not have an impact on your credit score or affect your credit score. A soft hit evaluates your credit on basic level without taking a deep dive. All the necessary details on your credit report are revealed without your credit report taking a hit on your credit score. If you were to pull your own credit report, the credit inquiry would be registered as soft inquiry and impact your credit score.
How does credit inquires impact your mortgage approval when you have bad credit? Although soft inquiries do not impact your credit score, it is very possible, that by having too many hard credit inquiries alone can bring your credit report score down from 670 rating to even below 600. This is because the hard hit registered from a single hard credit inquiry will lower your credit score. So multiple hard credit hits can drop your credit score as much as 100 points in a short period of time. In order to maintain a good credit score you will need enough time for your credit score to recover from each hard hit, other wise you credit score will just be headed on a decline.
Can Someone with Really Bad Credit get a Mortgage?
The lowest credit score you can have is an Equifax of 300, which is a really bad credit score and is categorized as having a poor credit rating. But can someone with really bad credit get a mortgage? The answer is yes, but the mortgage options that are available to you if you have a poor credit rating ranging from 300 to 579 are very limited.
However, our team at Brampton Mortgage Broker, specializes in obtaining bad credit mortgages approvals for clients who have bad credit. Although the banks will not be an option for your mortgage if you have bad credit, with the help of our team, we will help secure you a bad credit mortgage regardless of your credit situation that will benefit you. Even after your bad credit mortgage approval, our team works with you and customize a credit repair program to help improve your credit score so we can help move your mortgage to the banks as soon as possible. The end goal of our team is to help you get the best mortgage possible for your credit situation. Even if your credit situation is in bad shape our team will work with you to get you back on the right track, so you are not stuck with a bad credit mortgage for the long run.
Cost of a Getting a Bad Credit Mortgage
Having good credit has significant advantages over not having good credit. Just keep this one fact in mind about your credit. It can take as little as a few days to a few months to completely ruin your credit and on the opposite side it can take many months and even years to repair your credit score.
There is no sugar coating the cost around a bad credit mortgage, when you have bad credit, you can almost be certain that there will be a cost of getting a bad credit mortgage. The cost of getting a bad credit mortgage will impacted in your mortgage rate, lending fees, and possibly require you to increase your down payment. Let’s briefly discuss all three points around the costs of a bad credit mortgage.
One, the mortgage rate you will receive when you get a bad credit mortgage will depend on how bad your credit really is. Generally speaking, as a rule of thumb, the rate you can estimate that you can receive when you have a bad credit mortgage is about 2% higher than what the bank offer for their interest rate. So, for example, if the bank is offering a rate of 1.99% then a bad credit mortgage rate can be somewhere around 3.99%. Just keep in mind this is just a rough idea, and to know what rate you can qualify for make sure to reach out to our team so we can properly look into your credit situation.
Two, the lending fees involved in getting a bad credit mortgage will depend on the mortgage lender that will approve you bad credit mortgage. When it comes to the lending fees, all mortgage lender who approve bad credit mortgages will have lending fees that vary. The lending fees that they charge will depend on your particular bad credit situation. If in your case, you have slightly bad credit then you may be able to get your mortgage approved with very low-cost lending fees. But if your credit score is in really bad shape then you will most likely be on the very high end of lending fees that bad credit mortgage lenders charge. As a general guideline you can estimate 1% of the mortgage amount for the lending fees when it comes to getting a bad credit mortgage. For example, if your mortgage is for $350,00 then the lending fees at 1% will equal to as low as $3,500. Again, just keep in mind that this is just a rough idea, and we advise you to reach out to our team to find out how much lending fees will be for your bad mortgage situation.
Three, furthering your down payment when you are buying a home with bad credit. In Canada, the least amount of down payment you can put down when purchasing a home is 5% but this is reserved for those who have excellent credit. But if you have bad credit then the least amount you can put down is 20% as a down payment. Just keep in mind that this is just the minimum and depending on how bad your credit situation is you maybe required to put down a larger down payment. For example, if you have had a consumer proposal or a bankruptcy then your minimum down payment can be of 25% of your home purchase price. However, other factors do come into play here, when we are talking about down payment for a purchase of a property. These factors may include type of property you are purchasing, location of the property, and what the intended use of the property will be, in addition to your credit score and credit history. Just note that these down payment figures are just estimates and to get a definite down payment amount for your bad credit situation, we strongly advise you to reach out to our team to find out how much of a down payment you will need for your home purchase with bad credit.
After discussing all these points, don’t be intimidated by what you think it will cost you to get a bad credit mortgage, we strongly recommend you reach out to our team and get the exact numbers for your bad credit mortgage situation. It is an important fact to know that bad credit mortgages are meant to be a short-term solution to your financing situation and are not meant to be for a long period of time. Once our team has worked with you to overcome your bad credit, then we will immediately work to move your mortgage to the banks.
Why Work with us for your Bad Credit Mortgage
We have helped over hundreds of clients over the years obtain a mortgage for their current situation even with bad credit. We are able to arrange mortgages for our clients with great rates and low affordable payments for their bad credit mortgage. We are trusted and highly reviewed by our clients for the mortgage services we provide. We understand that having bad credit can make things difficult, but it doesn’t have to be that way, we can help make your situation better and help get your mortgage approved. We have access to a large network of bad credit mortgage lenders that our team is able to leverage to get your bad credit situation approved no matter how difficult it may seem. We have the experience and mortgage knowledge to help you. Don’t wait any longer apply online or give us a call today!