Getting a mortgage in Ontario can be a challenge if you have a bad credit score. Most lenders have set credit score requirements for approving mortgage applications. A credit score is a three-digit number that ranges from 300 to 900 and represents the creditworthiness of an individual. A credit score below 680 is considered low by most lenders.
Mortgage with a bad credit score
Some lenders may approve your mortgage application even if you have a bad credit score but, they charge high-interest rates. The average loan term for a bad credit mortgage in Ontario is around six to eighteen months, as it’s usually a last resort and a temporary measure. We have compiled some information to help you get a mortgage if you have a bad credit score.
How to get a mortgage with a bad credit score?
Having a bad credit score isn’t necessarily the end of your homeownership dreams. Although it won’t be easy to get a mortgage with a bad credit score, the following steps can help you:
Get a stable job
Most lenders prioritize approving applicants who have stable jobs. If you are self-employed but can show a regular source of income, lenders will approve your mortgage more often than not. Lenders may consider you high risk if you have a bad credit score and an unstable job or source of income.
Spend less and save more
A high debt ratio can negatively impact your credit score. If you spend more than you earn, lenders will be less inclined to approve you for a mortgage. Caution yourself against spending extensively and continue to save money to attain a stable financial position. Doing so consistently over an extended period shows that you’ve figured out a steady balance between spending and earning.
Find the right lender
It can be challenging to find a lender in Ontario if you have a bad credit score. It requires extensive research to find lenders in your areas and check if they accept borrowers with bad credit. After making a list of accredited lenders that meet your needs, you can compare their terms and conditions before reaching out to them.
Save for a down payment
Saving for a down payment can help you get a mortgage with bad credit. Your target should be to save as much as possible for the down payment. A sizable down payment indicates that your finances are improving and you are no longer a financial risk. It can lead lenders to consider your mortgage application even if you have a bad credit score. A large down payment also allows you to have a shorter payment period which lowers the lender’s risk, increasing your chances of approval.
Get a joint mortgage
Another good option for getting a mortgage with bad credit in Ontario is to get a joint mortgage. A joint mortgage uses a third party as a guarantor of the mortgage. The guarantor promises to make mortgage payments on your behalf if you fail to do so. Your lender will assess your guarantor’s credit score, and if it’s good, you can leverage it to get your application approved. Your guarantor is considered a co-borrower, and their credit score is included in your application.
Improve your credit score
You can improve your credit score by committing any credit products in your name. However, be cautious of applying for a credit product that’s beyond your financial capabilities. Also, making steady payments towards your debts over long periods can slowly improve your credit score to acceptable levels and increase your chances of getting approved.
Most lenders require a minimum credit score of 680 for mortgage approvals. Anything below that is considered unfavourable. Traditional financial institutions like banks have stringent criteria for approving your mortgage application. If your credit score does not meet the minimum requirement, you may need to work with a private mortgage lender.
Although there are several options for getting a bad credit mortgage in Ontario, most lenders consider them risky. They tend to impose high-interest rates, fees, and more on the borrower to compensate for the added risk. The best way to get a bad credit mortgage in Ontario is to try and follow the above steps to improve your credit score over time and qualify for a better mortgage in your next term.