Picture this: after saving for years, you’ve finally pooled up enough money for the down payment and are ready to buy your first home in Ajax. Like other homebuyers, you decide to get a mortgage pre-approval just to stay on the safe side. But as you eagerly wait for the green light from the lender, you receive a message that says, “Your credit score is low.”
This news can certainly feel like a major setback, but does it mean your dream of becoming a homeowner in Ajax is over? Can you not buy an MLS listing in Ajax if you have a bad credit score? Let’s explore below!
Is Buying a Home in Ajax Really an Option for Those with Low Credit Scores?
Yes, even if your credit score is low, you can still become a homeowner in Ajax. But keep in mind that getting a loan with bad credit isn’t so simple or without any challenges (more on this below!).
Your credit score is usually a three-digit number that reflects your creditworthiness and can be anywhere between 300 and 900. Generally, a credit score of 700 or higher is seen as good by mortgage lenders and scores between 600 and 700 are considered fair. On the flip side, a credit score below 600 is tagged as “bad” and can signal to lenders that you might struggle to repay the loan you will take to buy the MLS listing Ajax.
How Can a Bad Credit Score Affect Your Home Loan Process?
One of the worst things that can happen because of a low credit score is lenders turning down your loan application. Wondering why this happens?
That’s because a low credit score usually signals to the lender that you have had trouble making payments on time or have a lot of debt – a red flag. So, since you struggled with your loan payments in the past, lenders might worry that you won’t be able to make your mortgage payments in the future too. Hence, lending you money to buy a home can be a big risk for them.
Even if you do get the green light on your loan application, you’ll have to pay higher interest rates since lenders see you as a higher-risk borrower. To offset that risk, the lenders will charge you more for borrowing money to buy the MLS listing in Ajax. And even a small hike in interest rates can significantly affect your monthly payments and the total amount you pay over the life of the loan.
Having a low credit score can also limit your options when it comes to choosing a loan type. Some lenders only offer loans to those with higher credit scores thus leaving you with fewer choices. Additionally, you could miss out on helpful programs designed to help first-time homebuyers or low-income families which often require a better credit score.
Options for Buying a Home in Ajax If You Have a Low Credit Score
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Put More Money Toward Your Down Payment
One of the most effective ways to offset a bad credit score when buying an MLS listing in Ajax is to increase your down payment size. For instance, try to put down 20% of the home’s purchase price instead of the usual 5% of 10%. This way, the lender might be more willing to work with you as a bigger down payment means a smaller loan amount.
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Consider a Rent-to-Own Option
Under this arrangement, you can rent the home in Ajax with the possibility of buying it later. You’ll keep on paying rent and a portion of that rent will go towards your future down payment. This option can give you time to boost your credit score while still living in the home you want to buy.
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Add Someone to the Mortgage as a Co-Borrower
Another option to buy an MLS listing in Ajax with a low credit score is to add a co-borrower to your loan application. When you add a co-borrower, lenders will look at both of your financial situations which can improve your overall creditworthiness.
This co-borrower could be anyone – your family member or friend – as long as they have a good credit score and strong finances. Also, make sure the borrower is someone you trust and rely on as they’ll be equally responsible for the mortgage payments. If the co-borrower misses even a single payment, your credit score can go from bad to worse.
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Turn to B-Lenders for Getting the Loan
If you’re failing to get a loan with a bad credit score from a traditional lender, turn to B lenders. B-lenders usually have less stringent criteria and are often willing to work with borrowers who have bad credit scores. Sure, they might charge you slightly higher interest rates but they can provide you with the funding you need to buy the MLS listing in Ajax when others can’t. Once your credit score improves, you can refinance your loan and get a better rate later on.
Better to Wait and Boost Your Credit Score Than Buy a Home Now with These Options
So, as you have seen, there are tons of paths through which you can buy your new home in Ajax even with a lower credit score. However, keep in mind that each of these home-buying options comes with its own drawbacks.
For instance, increasing your down payment might put a strain on your budget. Working with B-lenders means saying YES to extremely high interest rates and unfavourable terms that can make your mortgage more costly in the long run. The rent-to-own agreement typically involves higher monthly payments than traditional rents. Lastly, if you choose to co-borrow the loan, remember that any late or missed payments from your co-borrower’s end can hurt your credit history too.
Hence, if you can hold off for a bit, it’s worth waiting and improving your credit score before buying an MLS listing in Ajax. This option will sure require a lot of waiting but it can make a big difference in your borrowing power. To raise your credit score, you must pay all your bills on time without any delay, keep your credit card balance low, and pay down as much debt as possible.
Happy homebuying!