Do you own a home but you have bad credit? Are you looking to improve your credit score? Applying for a second mortgage may be the solution you’re looking for. Although it can be difficult to qualify for a second mortgage with bad credit, it’s not impossible. Never say never. Start by improving your credit score (if possible), then you you can start shopping around for the best second mortgage rate and term you can find. Your mortgage broker can help you here.
How Bad Credit Affects You
It’s important to remember that second mortgages come with higher interest rate that your first. After all, you’re increasing your debt load, which also increase your risk level. Aside from this, your first mortgage is more important that your second mortgage. What this means is if you default, you have to pay the lender from your first mortgage first.
As previously stated, a bad credit second mortgage makes you more riskier in the eyes of lenders, so the cost of borrowing will be higher due to the higher risk. If you’re credit score is as bad as it can get, you’ll also experience higher than normal interest rates and strict borrowing terms.
Even Credit Bureaus Make Mistakes - Repair Them
Before you apply for a second mortgage with bad credit, you should first try improve your credit.
So who maintains your credit history?
Well, in Canada there are 3 credit bureaus:
You can request a copy of your credit report for free, once per year.
Once you get the copy of your credit report, review it carefully for any errors that may exist. If you notice any mistakes, speak to the lender to request help to fix them. This will speed up the repair of your credit score.
Reduce Your Credit Card Debt
- If you have a lot of credit card debt you want to try and get this debt under 30 percent of your limit, even though paying them off in full looks even better.
- Avoid completing any credit applications or doing debt consolidation prior to applying for a second mortgage, either one of these will have a negative effect on your credit score, and make it harder or near impossible for you to get approved.
Explore Possible Lenders
The best news here is, that it’s not impossible to get a second mortgage loan with bad credit. Consider hiring a mortgage broker, they can find you a lender. A mortgage broker is the best option since they have access to so many different lenders. They can learn about your circumstances, provide advice and find you the best second mortgage rates.
Ask for Help
After you explore your options with a mortgage broker to find out all of your possible options and get a pre-approval completed, if you find it’s too expensive you can alway consider asking for help. Having a cosigner, such as a close friend or relative, with good credit can help to get you approved for less. In this case it will be their credit score that lenders will consider, and not yours.
Even though your cosigner’s credit score is the main consideration in the approval, you will be the one making the payments on the second mortgage. Therefore, you will still be able to improve your credit and make use of the home equity too. Remember, only borrow what you can budget and don’t stretch it beyond that, anything can happen.
Ready to get started with your second mortgage? Apply online now at AKAL Mortgages.
When we say Yes, we stand behind our promise!