One of the biggest challenges aspiring homeowners face is trying to get a mortgage with a bad credit score.
Your credit score is a number used by banks and other financial institutions to determine the riskiness of lending money to a given borrower. The higher the borrower’s credit score, the more trustworthy they are seen to be. Credit scores are calculated out of 900, and a ‘bad’ or ‘poor’ credit score is considered any score below 600.
If you have a credit score below 600, it could complicate things for you, especially if you are trying to get a mortgage. Most banks fear the risks associated with lending someone with bad credit. If you live in a city like Guelph, this can make it a challenge for you to purchase your dream house or a condo, especially as owning a home in the region becomes much more expensive over time.
In early May 2022, the city of Guelph saw a 25.7% increase in home prices from May 2021. This puts Guelph ahead of nearby cities like Brampton, which only had a 19% increase in home prices from 2021 to 2022, Hamilton, which saw a 14% increase and Vaughan, which only grew by 2.6% from May 2021 to May 2022.
With average home prices hitting $989k in Guelph, and over $1 million in neighbouring towns of Action and Milton, it’s not easy for many to buy a home in, or around The Royal City. The good news is even if you have a bad credit score, you can still get a mortgage and buy the home of your dreams in Guelph.
How to Get a Mortgage with Bad Credit in Guelph
Improve Your Credit Score
If you want to buy another house or condo, you should try to improve your credit score as much as possible before you apply for a mortgage. That way, you increase the likelihood of lenders accepting your application, and it’ll also help you get lower interest rates –– as the lower your credit score, the higher lenders will set your interest rates if they are considering borrowers with bad credit.
The first thing that you need to do is check your credit report for errors. It happens quite often that credit reports have errors. In fact, almost a third of credit reports have errors. This is why the first step is to check yours and review your history to make sure everything is in order.
The next step to improving your credit score is to pay off as much of your existing debts as you can. If you have any outstanding debts, pay them off as soon as you can.
Using credit helps improve your credit score if you can show that you can be responsible. You should still use credit occasionally, but always pay it back before any deadlines and try to not use more than a third of the credit that is available to you. This will prove that you can be a diligent manager of money.
Make sure you always pay your bills on time. Do it enough times, and your credit score will only keep improving.
Find Alternative Lenders
While most banks and credit unions in Canada won’t approve your loan application if you have a credit score of less than 600, there are other lending options. There are plenty of companies that work with people that have bad credit. From individual lenders to mortgage corporations, there are a wide variety of alternative lenders you can work with if you have bad credit.
In hot real estate markets like Guelph, or most of Ontario for that matter, private lenders will be open to working with you since the land you are buying is so valuable. Even if the home you want to buy is in smaller communities like Fergus or Puslinch.
All you need to do is look these companies up and make sure you’re dealing with a reliable one with a proven track record of helping people like you. You can go on Google and search for terms like ‘private mortgage lenders in Guelph’ or ‘private mortgage in Ontario’ to find different alternative lenders online.
Many of these alternative lenders will simply want proof of income to ensure you can make your monthly mortgage payments. To compensate for your bad credit score, they will charge higher interest rates and fees than banks. Not only will you build home equity as you make payments on your private mortgage, but you will improve your credit score in the process. After enough time has passed, you could refinance your private mortgage to get more favourable interest rates and save money.
Consider Other Options
How much money you have saved for a downpayment is another angle that lenders consider when they’re viewing your application.
If you save up to 20-25% of the home price as a down payment, as opposed to the usual 5-10% in Guelph and all over Canada, you can sway lenders into approving your mortgage as you are less of a risk. If you own an existing property, selling it fast can help, and if you manage to do it, you can pay off some of your debts and save for the large down payment.
Another option you could consider is finding a co-signer for your mortgage –– someone who has a good credit score and can guarantee that you’ll make your mortgage payments. However, this person will be liable if you fail to make mortgage payments, so it will likely have to be a friend or family member.
Bad Credit Mortgage Lenders in Guelph, Ontario
At the end of the day, those looking to become homeowners in Guelph, or who want to explore their financing options in Guelph can find lenders willing to work with them even if they have a bad credit history.
To learn more about private lenders in Guelph, and what your options are with poor credit, call Mortgage Broker Store at 416-499-2122 or check their website here.
Mortgage Broker Store is an active mortgage broker in Ontario, and has been operating for over a decade. With their experience and free advice, they can walk you through the mortgage application process, explore your options, and connect you with their network of private lenders across the province and in the city of Guelph. This way, you can get the information you need to make your next move and get a mortgage even if you have a low credit score.