Can You Apply for a Home Loan From Banks if You Have Bad Credit?
If you have bad credit, you’re going to have a hard time getting approved for a mortgage/home loan from traditional banks and credit unions. In fact, in Canada, you’ll most likely get rejected outright. But, there are some alternatives. If you’re willing to look beyond the traditional lenders, you may find that there are a number of options available to you.
Mortgage Loans for Bad Credit
In Canada, if you have bad credit, you may be able to apply for a mortgage through an alternative lender. Alternative lenders include private mortgage insurance companies, non-bank mortgage lenders (peer-to-peer), and online lenders that specialize in providing home loans for people with bad credit.
The credit score rating system in Canada ranges from 300 to 900, with scores of less than 560 being considered poor. As of early 2022, the magic number to qualify for a traditional mortgage in Canada is 680.
Pros and Cons of Bad Credit Home Loans
Before you go applying for a home loan with bad credit, you need to know what you’re getting yourself into. Below is a quick overview of the pros and cons of home loans for people with bad credit.
Pros
- Bad credit accepted.
- High chance of approval.
- You don’t have to wait weeks or months to get approved.
- You don’t have to go through a lengthy application process.
Cons
- You may be required to pay a bigger down payment.
- Very high-interest rates.
- Closing costs are very expensive.
- Predatory loan providers.
Mortgage Loan Interest Rates in Canada
To help you better understand the different interest rates of mortgage loans in Canada, here is a short comparison of the home loans that you can choose from:
Major Canadian Banks
If you have a credit score ranging from 600 to 900, you can qualify for a prime mortgage loan at an average interest rate of 3.49%. The aforementioned average rate is from TD Bank.
Rating
4.4/5
Toronto Dominion Bank
For entrepreneurs who are looking to finance their business, Toronto Dominion is a great option. The TD bank offers several businesses banking services such as small business loans, lines of credit, equipment financing, merchant accounts, and much more.
Bad Credit Financial Institutions
Bad credit financial companies like Home Trust can provide home loans with an average rate of 5.49%. You need to have a credit score of 550 to 700 in order to qualify for a bad credit mortgage loan.
Private and Online Lenders
If your credit score is way below the 600 mark, you can still apply for a bad credit home loan from private and online lenders. The only downside to this option is you’ll be charged with exorbitant fees and interest rates ranging from 10% to 15%.
How Can You Qualify for a Mortgage Loan?
If you have bad credit, the only way you can qualify for a mortgage loan is through a bad credit financial institution or private lender. You’ll have to fill out a full credit report, which includes a credit score, debt-to-income ratio, employment history, etc.
This is where the problem lies. If you don’t have a job, or if you have a job that pays below the minimum wage, your chances of getting approved for a home loan are pretty slim.
If you want to get a traditional home loan with a lower interest rate, you need to work on improving your credit score, as well as increasing your income. You can do so by slowly paying off your debt, taking out a secured credit card (prepaid credit card), or applying for a second job.
Conclusion
Buying a new home is not a walk in the park. There are a lot of things to consider and plan for. If you’re having trouble finding a home loan with bad credit, then it’s time to start working on your finances. You can use the information provided in this article to get a better understanding of the process of applying for a home loan. To get the best deal possible, you may want to start improving your credit situation before you start buying a new house.
Aunt Piggyy
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