When we face financial burdens, applying for loans can prove difficult. Life roadblocks and milestones such as divorce, schooling, renovations and building a family can become costly. While the process of buying a home with bad credit can be complicated, it’s certainly not impossible. We’ve outlined a few important points to keep in mind before applying for low credit score mortgages.
Debt to Income Ratio
When borrowing money, consider your debt to income ratio. Do you have high credit card debt or multiple loans? Are you living by yourself and therefore paying all of the rent on your own? Do you feel like you live paycheque to paycheque? There’s lots that the bank looks at when reviewing your finances. If you want the lowest mortgage rate possible or if you want to ensure you receive loan approval in the first place, it may be time to make some financial adjustments. Consider getting a roommate, selling your vehicle, or obtaining second employment. Lenders look at aspects such as these when going through the mortgage approval process.
Proof of Employment
It’s rare that your loan request will be approved unless you can provide proof of employment. If you’re not bringing in a reasonable income, then a lender is more likely to view you as a high risk applicant. Regardless of whether you have bad credit or not, any time you apply for a loan, the lender’s top priority is that you’ll be able to stay on top of your monthly payments. If you can’t provide proof of employment and aren’t certain about how you’ll pay the bills, you may want to re-assess your priorities.
High Down Payment
In Canada, purchasing a house requires a down-payment starting at 5%. While there are numerous factors that can increase that number, this is typically the minimum amount that is required. If you’re considering investing in real estate and want the best mortgage rate possible, it’s advised that you offer a higher down payment that goes above and beyond the required amount. Not only will you be more likely to receive a generous rate, there’s also a better chance of you being granted with loan approval. Try aiming for 20%-25% if you have a low credit score.
If you’ve been faced with financial struggles and have therefore seen your score suffer, it’s important to understand that the approval process may be tough. You’ll also want to be aware that with bad credit, you’re considered a high-risk applicant and may end up paying a higher rate. Just remember: the lender is providing you with hundreds of thousands of dollars and it’s crucial to them that you’ll be able to pay your payments in full, on time, every month. If you’d like to talk more about how your credit score may affect your ability to purchase property, let us at Rampone-Marsh know! We’d be happy to answer any of your questions or concerns along with providing expert advice about how you can successfully purchase a home.