Bad Credit Mortgages
What is bad credit, and how do people know if they’ve got a poor credit rating?
Bad credit can arise from several factors. Late payments, defaults, and debt arrangements can all contribute to bad credit. Many clients aren’t aware they have bad credit until they apply for a credit card, loan, or, most importantly, a mortgage. Often, by the time they come to us, they have a property in mind, and what’s on their credit file might prevent them from buying that home.
There’s often a difference between what clients perceive as bad credit and what we see as bad credit.
For example, one missed payment isn’t as serious as a default on your file.
To determine if you have bad credit, the main way is through credit reports. It’s important to check your credit files. Clients often use platforms like ClearScore or Experian, which you can check online yourself. However, the best credit report to get is pulling your credit bureau from one of the three major credit agencies: Experian, TransUnion, and Equifax. When applying for a mortgage we pull from one of these three agencies.
Essentially what is important is in the detail. If you’ve got a default, when was it registered? How much was the default for? Have you kept up to date with everything since? Has the default been cleared off?
Also, Many first-time homebuyers can have a low credit score without having bad credit. It doesn’t mean that something’s gone wrong; it just means you’ve not established credit. There are many tips on how to establish your credit & build a healthy credit portfolio in preparation for your first home purchase.
Connie can help walk you through the various scenarios and how to overcome some of the obstacles or challenges you may be faced with.
Understanding Bad Credit and How It Affects Your Mortgage Chances
The Importance of Checking Your Credit Report Before Applying for a Mortgage
First-Time Homebuyers: Navigating Credit Scores and Mortgage Approvals
Absolutely, yes. There are numerous lenders in Canada who are willing to lend in this situation and actually specialize in this area. It may mean that you need a slightly larger deposit compared to someone without credit blips on their file and it will mean a higher interest rate but there are definitely options available.
A judgment orders you to pay money back to your creditor. For instance, if you have a credit card with a Canadian bank and owe them $1,000 but ignore all their correspondence, a judgment will be issued against you. This goes on your credit file for six years.
It might take several months for the judgment to be registered, so the dates aren’t always accurate, which means it can negatively impact you for longer than six years.
In terms of getting a mortgage, it is possible, but you will likely need a higher deposit. If a client had a judgment registered six months ago, there are mortgage products available, but they might need a 20% deposit. Someone with good credit can usually get a mortgage with a 5% or 10% deposit.
Many people think they must satisfy the judgment to get a mortgage, but that’s not always the case. Lenders tend to consider the date the judgment was registered, not the date it was satisfied. Generally, if the credit issue is more than three years old, the lender may disregard it.
What is a Default and Will It Stop Me from Getting a Mortgage?
Most creditors will put your account in ‘default’ after six continuous missed payments. So if you missed your payment in January, February, March, April, May, and June, in June it will be turned into a default. This will stay on your credit file for six years.
It will show up as a “D” on your credit report. A Checkmyfile report will provide the date the default was registered, the amount of the default, and the date it was satisfied if applicable.
Lenders typically have a three-year rule on defaults. Additionally, if the default is for a utility company, some lenders may potentially ignore it, especially if it’s under a certain value. Generally, there are a lot of options available if you have a default.
We recognize that credit issues often result from significant life events, such as job loss or the death of someone close. Managing finances during these times can be very stressful, and escaping from debt can be challenging.
It’s all about saving and planning. If you can’t get a mortgage right now, we can keep reviewing your situation and work with you to create a plan.
Once you’re in a position to talk to a lender, they will often ask for an explanation of your debt issues. After all, they’re lending you a large amount of money and want reassurance that it will be repaid.
If your credit problems stem from a life event such as a death or divorce, lenders are often understanding. However, if the issues are due to general poor money management, they will be more cautious. They will ask for proof that you’ve improved your financial habits and track record.
