There is no question that the better your credit is, the easier it will be to get a mortgage. But that doesn’t mean that you still can’t get a mortgage even with a low credit score. To understand why this is the case, you need to understand that there are different types of lenders.
Traditional lenders such as banks and credit unions are called “A lenders”. These lenders will usually have the best interest rates on mortgages but they will also require you to have good credit if you want to get a mortgage with them.
“B-lenders” are companies that specialize in different types of loans such as mortgages for people with poor credit, self-employed mortgages, etc. These lenders look at the bigger picture and will make their decision on whether to lend based on other factors than credit alone. They will usually charge a higher interest rate because, with poor credit or insufficient credit history, your mortgage will be considered a riskier investment. Getting a mortgage from a “B lender” is a good option if your credit isn’t good enough to get a mortgage with an “A lender”. One strategy is to get a mortgage from a “B lender” for a few years while you build up your credit enough to qualify for a mortgage with an “A lender”.
Finally, if your credit isn’t good enough even to get a mortgage with a “B lender”, you can try getting a mortgage with a private lender. Generally speaking, there are two types of private lender. The first type is a company or individual that invests in private mortgages. This type of lender usually charges the highest amount of interest however it may be worth it for a year or two if it helps you to finally become a homeowner.
The second type of private lender is someone – usually a friend or family member of the borrower – who is lending them the money primarily to help them out. They may still charge interest, but usually the interest they charge is much less than what an investor would charge. If you decide to go this route, make sure you have a proper mortgage agreement that is drawn up by the lawyer which includes all the relevant details – including what happens to the home if you default on the loan.
If you have a low credit score, getting a mortgage will be more difficult – but it is usually still possible as long as you have a good mortgage broker that can connect you with the right lenders.
So if you are looking to get a mortgage but worry that your credit score is too low, I would love to help. Contact me today to schedule an appointment.