Having a perfect credit score is your definitive key to unlocking doors for a quick and easy mortgage. But, what if you have a bad or a low credit score? Your past financial mistakes, delayed payments, missed out bills may have hampered your credit history. And, securing a mortgage from a traditional lender or a bank seems impossible.
So, for those bad in credit, that's not the end of your dreams. The prospects seem grim, but you still have decent chances to own a home. Private Mortgages, HELOC, Rent-to-Own options, etc. are some of the exclusive financing solutions to help you in such a situation.
Credit Score: Good Vs. Bad
How will you define a good or a bad credit score? As you know, the credit score ranges from 300 to 900. A potential tool in the hands of lenders judging your credibility! Your paying habits, income, employment status, and current debts are some of the factors determining your credit rating.
A score of 760 or above makes you reach the stellar category! Whereas anything below 560 will throw you in the danger zone, i.e. you are said to have poor credit.
Now, let's take a closer look at a few appropriate financing methods for the borrowers with bad credit.
Getting Mortgage With Bad Credit
You may encounter financial issues that can bruise your credit records. So, if you wish to buy a home, but lack a good credit score, these could be some of your ideal choices:
Private Mortgages
One of the most viable home mortgage solutions is through a private lender. A popular one! Indeed!! Got an excellent or good credit score, you can avail of an easy loan from the big banks or "A Lenders". But, if not, you may have to switch to a private mortgage lender. Borrowers also tend to turn towards these alternative lenders amid stringent mortgage rules and policy changes. Fair enough!
Private mortgages are generally provided for a period of six months to three years. The property and not your credit score is the basis of eligibility.
So, if you are worried about a low credit score? You want faster financing without complex documentation, a private mortgage may become your saviour. Connect to a private lender who can fund your real estate purchase. Since you are in the high-risk window, you may have to bear a higher interest rate. And, that's justified owing to the financial risk you carry.
A speedy closing process and flexibility in conditions make private funding an appealing resource. Moreover, building equity sounds wiser than throwing your hard-earned money into the broadening rent-drain. Isn't it?
Home Equity Line Of Credit Or HELOC
Now, if you have a poor credit score, you can try out HELOC or Home Equity Line of Credit as well. A revolving credit, in which instead of availing all the funds at once, you can access them as and when you need them like a credit card. And, you pay interest only when you borrow money from it.
The home serves as collateral for that loan, a guarantee for this type of secured debt! A practical choice, if you have an inferior credit score! But remember, if you make a default, your home is at risk!
Wait! If you are considering a stand-alone HELOC (as a mortgage substitute), you may require a higher down payment. Do prepare for that!
Rent-To-Own Program
Think of the soaring housing prices and the tightening lending standards. Can an average Canadian own an affordable house easily?
Luckily, you have practices like Rent-to-own, where you pay the monthly rent like a tenant. But, a portion of that rent goes towards the down payment of the house.
Grow your down payment while living in the house you wish to own! That's how it works! A gradual and convenient step to follow, especially if you have weak credit or insufficient funds.
Mortgage Solutions With Bad Credit: How To Pick?
Your credit report is a reflection of your ability to pay back. What to do if your credit rating is a bit challenged? Rebuilding and improving it may take a considerable amount of time. Hence, Private lenders dealing with bad credit consumers can be your finest hope.
Other than that, there are various options for those with impaired credit. Which one is best for you? Your financial conditions and the lender's assessment will decide. Be ready to discuss it with an experienced mortgage broker!
So, are you planning to purchase a beautiful home? Firstly, check your credit score and know where you stand. And, then arrange for a sensible mortgage solution!
