Everyone who has ever bought a house (or made any large purchase with the help of a bank) knows that credit is king. This is the foundation of the most common financial advice: start building credit early, pay off all your bills on time, and don’t buy things you can’t comfortably afford.
In spite of all of our best efforts, life sometimes happens. Can you still buy a house if your credit score has taken a hit? In this post, we’ll explore a few of your options.
Are you ready to start your house hunt in Peterborough or the Kawarthas? Our detailed buying checklist can help you stay on track. Download your copy right here.
Begin With an Honest Assessment
Depending on your history, you may assume that you have bad credit. The truth is that the situation might not be as dire as you think. In any case, an accurate understanding of where you actually stand will get you moving in the right direction. In Canada, credit ratings can range from excellent or good to fair or needs improvement.
Excellent credit is anything 760 or higher. Though nothing is guaranteed, most lenders are likely going to be happy to accept your application.
- A credit score between 725 and 759 is considered very good. There’s a good chance your lender will approve you quickly while offering you favourable terms.
- A score between 660 and 724 is good. You will likely qualify with most lenders.
- A range between 560 to 659 is fair. There’s certainly room for improvement, but it could also be worse.
- Bad credit typically falls below 559. At this point, it might be challenging to obtain further credit, particularly a mortgage.
Accurate and unbiased information is essential, especially when buying or selling a house during a challenging situation. The posts below can give you a solid foundation:
- What Do These Numbers Mean in Real Estate?
- Can You Avoid a Power of Sale of Your Home?
- Should You Buy or Rent a House in Peterborough?
Consider Your Timeline
If your score falls between fair and bad, don’t lose hope. There are ways around it, and you can begin now with some damage control.
Taking steps early to repair your credit can help you qualify for a mortgage with better terms and a lower interest rate. This can be the difference between affording a house comfortably and not at all.
The best way to start is with a blank slate. Make a commitment to paying all of your bills on time from now on. Prioritizing higher interest loans, such as credit cards, will help to improve your credit score and save you money over the long term.
At the same time, try not to apply for more credit unless absolutely necessary. In addition, be sure to monitor your credit reports through Equifax or TransUnion to ensure they are accurate and up-to-date. This is especially true if your identity has been compromised or there is a purchase on your history that you don’t recognize. The more time you have, the easier it will be to catch up while saving for your down payment and deposit.
Save for the Maximum Down Payment
In Canada, it’s possible to buy a house with as little as 5% down, depending on the purchase price. Let’s start by looking at the minimum requirements for a down payment.
- A property priced at $500,000 or less requires only a 5% down payment.
- You will need 10% on any amount between $500,000 and $1.5 million.
- For a house more than $1.5 million, you will need 20% regardless of your credit rating.
If your credit is bruised, you’ll want to set aside as much as you can and offer more than the minimum requirement whenever possible. All lenders will view you as less of a risk when you are able to pay more out of your own funds.
If you secure a mortgage at an unfavourable interest rate, a higher down payment will help you save money over the long term. A 20% down payment means you’re exempt from mortgage insurance. Plus, the more you pay upfront, the less you need to borrow in the first place.
If your credit score has taken a hit, you may need to be creative to buy a house. The posts below might give you some ideas:
- How Can You Make Your Home Offer More Irresistible?
- How to Buy a Home in Peterborough With Help From Family
- How Do Interest Rates Impact Buying Real Estate?
Explore Alternative Paths
What happens if your credit is less than stellar but you still want to buy a house soon? The regular banks and credit unions may be off the table. If so, a visit to an expert may be in order. Mortgage brokers work with multiple lenders, some of which may specialize in helping people with damaged credit access financing. If you need a recommendation, a local real estate team can likely assist you.
You can explore your options under private or B lenders. These tend to be more flexible in terms of their qualifying process. However, they may also come with higher interest rates and often require more of a down payment. Additional collateral may be required, so it’s important to read all of the terms and conditions carefully.
Some home sellers may offer financing through a vendor take-back mortgage. If the existing homeowner is mortgage free, they may be willing to come to an agreement. This type of arrangement would fall under a private lender, so once again, you’ll want to make sure you understand the risks involved.
A co-signer might help you obtain financing through a traditional bank or credit union. If a family member is willing and able to help in this way, it can help you avoid the higher interest rates that are common with private lenders.
Damaged credit makes buying a house more challenging, but that doesn’t mean giving up on your goal. It may take time and patience, but a clear path can open up to you when you have expert guidance on your side.
Do you have questions about buying or selling a house? Our Peterborough real estate agents are happy to guide you through even the most challenging situation. Reach out to team@jeffandkatie.ca or call 705-243-9797 to learn more.
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Curious about your real estate options? Relocating to the Peterborough area? Our experts are ready to help.
