Your credit score is a very important number; it is basically a storybook to the lenders that details how you handle money. The higher your credit score, the more likely you are to make your payments on time and the more likely lenders are to approve you for loans. An Excellent Credit score is over 720; a good credit score is between 620 and 679; a fair credit score is between 580 and 619; poor credit is 579 and lower. Here are 5 ways to buy a house with bad credit in Calgary.
Improve Your Credit
First of all, you need to know your credit score. Request a copy of your credit report from both Equifax and TransUnion Credit bureaus. Double-check that all information is correct and make sure to dispute any errors with the respective bureau. If you have any accounts in collections, try to negotiate with the debt collectors to work out how much it would be to pay up the collection account. Make sure you keep up on your payments because lenders like to see that you have no late payments for at least the past 12 months. This helps show them that you will continue to make payments on time. A low debt to income ratio will also convince a lender that you are able to handle the additional mortgage payment. Pay down credit cards as much as possible, preferably to maintain a 30% utilization ratio or better. This usually indicates that you are using your credit lines responsibly.
Make A Large Down Payment
If you make a larger downpayment than required, it will cut down on the total principle of the loan and lower the lenders risk. The less money you borrow, the more likely the lender is to accept your application. With a large down payment, good payment history, and low utilization ratio, a lender may not place quite as much weight on your less than perfect credit score, but that depends solely on the lender.
Private Lender
A different way to buy a house with bad credit in Calgary is to secure a private loan. Don’t go see the guy operating out of a pub downtown going by the name “Vinnie”, that is sure to make matters only worse. But if you have a family member or friend that can provide the funding for your house and you can make a private arrangement for repayment that would be a very good option. You should still draw up a mortgage agreement and follow it to make sure you do not ruin any relationships over unpaid money.
You may also find a property owner that believes in you and is willing to take a chance and provide an Owner Financing situation. This usually means the current owner will keep the deed in their name until you finish repaying the loan.
Co-Signer
Another way to buy a house with bad credit would be to obtain a co-signer. Having a co-signer with a better credit score than yours will significantly increase your chances of obtaining a more traditional mortgage. This may lead to a slightly increased interest rate, but probably not any higher than if you had secured the loan with your own credit. This gives the lender someone else to fall back on to receive payments in case you default on the loan.
Rent To Own
Another way to buy a house with bad credit would be to buy a rent to own property in Calgary, which simply means that it is a lease-option agreement with a traditional lease and an option to buy the property by the end of the lease period (typically the term is three years). You pay rent to the current owner/landlord through the duration of the lease, and a portion of it may even be applied towards the down payment of the house, or “rent credit.” During that time you would work with a mortgage broker that specializes in repairing credit so that you are able to qualify at the end of your lease period.