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5 Tips to Qualify for a Mortgage When You Have Poor Credit

Thomas Rise 2017-03-10

Today, roughly one in eight Canadians will file for bankruptcy or seek out a debt settlement. At some point in time, they will seek out a mortgage. Are they already doomed before they begin?

You have the down payment, you have a steady job and you have found a home that fits within your budget. You are certain that you will be accepted for a mortgage. But have you taken a look at your credit score or report as of late? If you haven't then you probably should right now.

Many mortgage lenders are hesitant about approving mortgage applications from applicants who have poor credit. This low credit score may stem from your days of irresponsible youth, when you maxed out your credit card to buy Starbucks lattes, H&M clothing and CDs for every Wolfang Amadeus Mozart piece. Nevertheless, it is poor and you need to rectify it.

Indeed, there are still ways that you can obtain a mortgage when you have poor credit. Unfortunately, it isn't as ubiquitous as it was prior to the economic collapse, when many lenders were more than willing to bet on high-risk mortgage applicants. With that said, it's still possible.

Here are five tips to qualify for a mortgage when you have poor credit:

Locate a Bad Credit Mortgage Lender

If you have a credit score of under 600 then nearly all of the nation's largest financial institutions will not extend a mortgage loan to you. Not all hope is lost, but you will have to search for a subprime lender, otherwise known as a so-called B lender.

These are organizations that collaborate only with individuals who have poor credit scores. Whether you have undergone bankruptcy or been slapped with a consumer proposal, you can still work with a mortgage lender. If you can't find one then you should contact a mortgage broker, a professional who can connect you with these types of mortgage lenders.

Play the Waiting Game

If you are a consumer who filed for bankruptcy, you will not even be looked at by a mainstream lender until you have been discharged from bankruptcy for a minimum of two years. Moreover, during this time frame, you must have a steady full-time income and stable employment.

Simply put: you have to play the waiting game to be approved for a $300,000 mortgage.

Be Willing to Accept a Rate Premium

Since you are a high-risk mortgage applicant, you need to be willing to pay the rate premium. This is when a mortgage lender will offer you non-prime rates of four to five percent.

It should be noted that you may only be required to pay an additional 0.25 percent if there is a good reason for your bankruptcy, consumer proposal or poor credit. These reasons could consist of a death in the family, poor health or anything else just as disastrous to your personal life.

Reduce Your Mortgage Length

Any financial expert will aver this piece of advice: reduce your mortgage length and short-term is better when you have poor credit.

Mortgage advisers will often recommend a one- or two-year term for non-rime borrowers. This will allow middle-class borrowers with bad credit to recover from credit delinquencies and rebuild their standing. Once the term is up, a lender can refinance the terms and conditions.

Fix Your Credit as Best You Can

Ultimately, one of the best steps you can take is to fix your credit rating as best as you can. Of course, this will take some time to remedy, but repairing will ensure you receive an affordable mortgage with rates that you can endure for the next 20, 25 or 30 years.

How can you fix your credit? Here are several tips to consider:

  • Continue to pay off low credit balances and other forms of revolving credit.
  • Try to pay off as much debt as possible rather than transferring obligations.
  • Pay all of your bills on time and the exact amount.
  • Dispute credit errors that may appear on your credit report.
  • Refrain from applying for new forms of credit.

These tips will help you garner a lot of credit points within just the first few months alone.

Although it does cost you a fee, you should invest in checking your credit report. Sometimes, errors can occur. Sometimes, an unscrupulous culprit may hack your identity. Whatever the case, you need to know what exactly is sitting in your credit report to rectify immediately.

You may want to achieve the North American Dream of owning your own home. Unfortunately, bad decisions have led you to maintain poor credit. The world hasn't come to an end since you can still apply for a mortgage, either by making sacrifices, seeking out specialists and being far more responsible with your personal finances.

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