Poor Credit Mortgages

Bad credit can happen to good people. But you can still get approved for a mortgage. Even if you have credit challenges, if you have equity built up in your home — we have lenders that may consider your mortgage loan application.

Entering the housing market with bad credit may seem daunting, but it is possible. While Canada’s Big 6 banks may not offer bad credit mortgages, alternative options are available through B lenders and private lenders. However, these options come with their own set of costs and conditions that may not suit everyone.

Understanding “Bad” Credit for Mortgages

Low Credit Score

A low credit score can be a significant barrier when applying for a mortgage. Credit scores range from 300 to 900. A score of 680 is typically required for approval from major banks, but some alternative lenders may consider scores as low as 500. Factors contributing to a low score include:

  • Failure to pay creditors on time
  • Overuse of credit
  • Frequent requests for new credit products
Sub-optimal Credit Report

Even with an improving credit score, lingering negative events on your credit report can be a red flag for lenders. These events, such as late payments, debts in collections, or bankruptcy, can remain on your report for several years.

Lack of Credit History

A short credit history doesn’t inherently mean bad credit, but it can be a hurdle. Whether you’re new to Canada or have delayed establishing credit, a limited history may require turning to lenders offering bad credit mortgages.

How to Secure a Mortgage with Bad Credit

  1. Find a Mortgage Broker with Alternative Lending ExperiencePartnering with an experienced mortgage broker can be invaluable. Brokers often have access to alternative and private lenders that you may not find independently. They can also help devise a financial strategy and an exit plan from a bad credit mortgage.
  2. Boost Your Down PaymentAlternative lenders often require a minimum 20% down payment for those with low credit scores. Preparing for this expense early is advisable.
  3. Get Pre-approved for a MortgageRegardless of credit score, securing a mortgage pre-approval is essential. It provides a realistic estimate of potential borrowing limits, helping set practical homebuying expectations. If not ready for pre-approval, a mortgage affordability calculator can provide general cost insights.
  4. Compare Mortgage OffersEven with bad credit, shopping around is crucial. Consult multiple brokers to access a broader range of mortgage rate offers.

Risks of a Bad Credit Mortgage

While homeownership has many benefits, pursuing it with a bad credit mortgage carries risks:

  • High Borrowing Costs: Alternative lenders charge higher interest rates due to the increased risk.
  • Large Down Payment Requirements: A minimum 20% down payment is often required.
  • Shorter Timelines: Mortgages from B lenders may have terms of three years or less, during which improving finances is imperative to transition to an A lender. Failing to do so could result in prolonged high interest rates.
  • Risk of Losing Your House: Private lender mortgages may increase the foreclosure risk if payments are missed.
  • Potential Financial Damage: If managing debt has been challenging, rushing into a mortgage could lead to future financial difficulties.

While obtaining a mortgage with bad credit is feasible, carefully weighing the costs and risks is crucial. Ensuring that homeownership aligns with your financial situation and goals is vital for long-term success

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