How to Get a Mortgage with Bad Credit in Canada: 7 Smart Techniques for 2023

If you’re one of the many Canadians who have a low credit score or bad credit, it can be challenging to get a mortgage.

Perhaps you’ve seen that your credit score is preventing you from getting approved for a mortgage loan? Here are the strategies you need on how to get a mortgage with bad credit in Canada.

In this article, we’ll show you how to get a mortgage with bad credit in Canada. We’ll discuss how people with bad or no credit history can still get approved for mortgages by looking at different tactics they may want to pursue.

We’ll also look at how you can improve your credit score if you find yourself struggling with poor or non-existent credit history.

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What is a Credit Score?

Your credit score is a number from 300 to 900 that a credit bureau has assigned to you – Equifax and TransUnion are the two most important credit bureaus in the country. Lenders use these numbers as an indication of how you’ve handled accessible credit in the past. 

Good credit history can help you qualify for low mortgage rates and save you money, so the higher your credit score, the better. Financial institutions consider individuals with poor credit to be high-risk investments. They will either refuse to lend them money or charge them a very high-interest rate if they accept the application. In that case then, how to get a mortgage with bad credit in Canada? We’ll get there.

Credit Score Range	Credit Health	Where Mortgage Interest Rates Start	Lenders Available
750+	Excellent	2.59%	Major Banks
700 – 749	Good	2.59%	Major Banks
650 – 699	Fair	2.59%	Major Banks and B Lenders
550 – 649	Poor	3.99%	B Lenders and Private Lenders
Below 550	Bad	6.99	Private Lenders

In mortgages, most banks will not accept clients with credit scores below 600, while trust companies demand a credit score of 550 or higher. If your credit score is less than 550, you may be able to get a high-risk bad credit mortgage from a private lender.

Your credit score is a significant financial indicator in Canada. But how can you tell if your credit score is poor to begin with? Let’s find out.

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How to Check Your Credit Score

Visit Equifax Canada or TransUnion Canada to see your credit score and credit report. It’s wise to check your credit report with both bureaus since some lenders may just pull your credit report from one of them. For example:

• TD Canada Trust, HSBC, CIBC, Desjardins, and Meridian Credit Union use only Equifax Canada, according to Loans Canada.
• RBC, Laurentian Bank, and Vancity exclusively use TransUnion.
• BMO, Scotiabank, Tangerine, and National Bank are among the banks choosing between Equifax and TransUnion.

You may get your credit score for free from third-party sites as well. 

Customers of some major banks in Canada can obtain their credit scores for free. Check your credit score and view your credit report with different free credit score companies because they will use only one credit bureau.

For instance, if you only examine your credit score from a free service that uses Equifax, you may not be getting the complete picture of your credit if your mortgage lender solely utilizes TransUnion.

Because creditors might select to just report to one bureau, data can vary between credit bureaus, so checking from multiple sources can help you spot any conflicts early. Borrowell, Credit Karma, and Mogo are free credit services that stand out in Canada.

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Canada’s Free Online Credit Score Providers

Free Credit Score Provider	Credit Bureau Used	How Often You Can Check
Borrowell	Equifax	Weekly
Credit Karma	TransUnion & Equifax	Monthly
Mogo	Equifax	Monthly
BMO	TransUnion	Monthly
CIBC	Equifax	Three Months
Scotiabank	TransUnion	Monthly
RBC	TransUnion	Monthly

Read More>>> How to Get Free Credit Report in Canada.

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7 Strategies for How to Get a Mortgage with Bad Credit in Canada 

1. Boost Your Credit Score

Boosting your credit score is the most straightforward answer to how to get a mortgage with bad credit in Canada. Higher credit scores are advantageous since they increase your chances of getting lower mortgage rates, resulting in lower monthly mortgage payments. If you’ve looked into your credit score and discovered it’s insufficient to get approved for a mortgage from the big banks (often known as “A lenders”), you may wish to focus on boosting your credit score before you apply. 

Here are some tips that can help you to get your credit under better control.

+ Pay all of your bills on time:

Delinquent payments will hurt your credit score, so be sure to pay all of your bills on time. Be sure never to miss any of your bills’ monthly payments, even utilities, and cell phone bills.  If you are finding it difficult to keep up with your payments, communicate with your credit providers to set up a payment plan.

+ Do not open too many credit card accounts at once:

If you apply for a new credit card, the bank will check your credit report and see if you have too many existing cards with high balances. If so, this could lower your score. It will send a red flag to credit reporting agencies, indicating that you need money fast. In other words, your application could be rejected as banks will think that you are a risky borrower.

+ Focus on paying off high-interest debt first:

Your objective should be paying off your credit cards and other high-interest debts before pursuing a mortgage. Pause from making purchases on your credit cards while focusing on first paying down the debt with the highest interest rates. Since Canada’s household debt burden is relatively high, this will allow you to get out of debt faster and improve your credit score over time.

+ Stay below your credit limit:

If you can, try to keep your credit card or loan debt under 30% of your limit. This indicates that you are a prudent consumer and do not have too much debt to credit reporting agencies.

+ Keep your oldest account: 

Keeping your oldest account open and active, even if it’s with a $0 balance or has an annual fee, may be beneficial. Lenders may see this as a sign of stability and prompt you to pay on time. It can also give your credit score a slight boost.

If you follow these suggestions to the letter, your credit score will improve after a few months. However, if you need to buy a house before becoming eligible for an A-lender mortgage, read on for more strategies on how to get a mortgage with bad credit in Canada.

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2. Save Up a Larger Down Payment

One significant tactic on how to get a mortgage with bad credit in Canada is saving up a larger down payment. A larger down payment will raise your chances of being approved for a mortgage. You can save money by reducing unnecessary expenditures or taking on additional work if employed full-time. When applying for a mortgage, lenders evaluate more than just your credit score. They also evaluate things like your earnings, debt levels, and the size of your down payment. 

The least possible mortgage down payment in Canada is 5% of the purchase amount of a property. If your credit is poor, your lender may demand a more significant down payment to mitigate risk. For a bad credit mortgage, it’s wise to set aside a 20-25% down payment. 

Not only does this larger down payment indicate that you are financially stable enough to purchase a house, but it also lowers your monthly mortgage payment. It also eliminates the need for mortgage default insurance, which is required of anyone getting a mortgage in Canada with a down payment lower than 20%.

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3. Find a Bad Credit Mortgage Lender

A bad credit mortgage lender can be your answer to how to get a mortgage with bad credit in Canada. If your credit score is lower than 600, most of Canada’s major banks will refuse to lend you money. If you don’t meet the minimum credit score requirement for a mortgage approval from your bank, you’ll have to look for a “B-lender.” Canada has a few lenders that cater specifically to unqualified borrowers with poor credit.

These financial companies, including trust firms, deal almost exclusively with those who have terrible credit. If you’ve had a bankruptcy or consumer proposal in the last two years, you’ll most likely have to work with a private mortgage lender. A mortgage broker should be able to connect you with a lender that understands your needs and will work with you.

If you take out a poor credit mortgage with a B-lender, you’ll almost certainly have to pay extra costs that you would not with an A-lender. Your B-lender will most likely charge a loan processing fee of up to 1% of the mortgage’s total value. 

Also, if you use a bad credit mortgage broker to locate your lender, you may be charged a fee, which is usually around 1%. The fee is passed on to you because mortgage brokers don’t get compensated for bad credit mortgages. 2% may not seem like much, but it comes out to $10,000 if you have a $500,000 mortgage.

How to Get a Mortgage with Bad Credit in Canada from Private Mortgage Lenders

Several lenders provide bad credit mortgages in Canada. Alpine Credits, Clover Mortgage, Canadalend, Prudent Financial, and Guardian Financing, are a few examples. In Ontario, a few private mortgage lenders include MortgageCaptain, Castleton Mortgages, and MortgageKings.

Some private lenders don’t have a credit score requirement, and some even permit you to make interest-only payments on your mortgage. This might be beneficial if you’re having financial difficulties. Making regular mortgage payments to a private lender can help raise your credit score, making it simpler to refinance your mortgage at a lower rate with another lender in the future.

How to Get a Mortgage with Bad Credit in Canada from B-Lenders

Lenders in this category include non-traditional banks such as credit unions and monoline mortgage lenders and mortgage investment corporations. The distinction between B-lenders and private lenders is that B-lenders usually adhere to federal rules set forth by the OSFI for federally regulated banks, particularly the Office of the Superintendent of Financial Institutions’ (OSFI) B-20 standards for a residential mortgage under writing.

When assessing a borrower, B-20 establishes strict requirements. B-lenders are free to follow them. However, not all of them do. Private lenders, on the other hand, do not follow B-20. B-lenders are more varied when it comes to obtaining a mortgage for bad credit. 

Like many monoline lenders (e.g., MCAP or CMLS) and credit unions (e.g., Alterna Savings or Meridian), some B-lenders provide CMHC-insured mortgages, which means they must adhere to CMHC’s underwriting standards for high-ratio mortgages. This requires a 600 minimum credit score.

Other lenders have less stringent criteria. For example, MERIX Financial has a comprehensive product line that caters to bad or damaged credit people. Because having bad credit already shuts many doors, it’s a good idea to exhaust every possibility. If the banks have turned you down, B lenders might be an acceptable alternative. 

B-lender mortgage rates are generally lower than private mortgage rates, and there are far fewer fees associated with B-lenders. When looking for a bad credit mortgage, it’s typically a good idea to go through B-lenders first before applying to private lenders.

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4. Prove Your Monthly Income

When applying for a mortgage, you must show that your income is enough to cover the payments. Most lenders utilize the Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS) to determine whether borrowers can afford their monthly mortgage obligations.

When looking for how to get a mortgage with bad credit in Canada, try to keep your GDS and TDS below 30%. However, some lenders accept applicants with bad credit who have higher debt ratios if they have a 35% down payment.

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5. Consider Getting a Co-Signer or Taking a Joint Mortgage

A co-signer on your mortgage is another answer to how to a mortgage with bad credit in Canada. A third party, known as a co-signer, is added to the loan as a guarantor. If you can’t make your monthly payments, the co-signer promises to pay them.

A co-signer can help you obtain better mortgage rates since your co-signer is essentially a co-borrower. Their income and credit score are taken into account during the mortgage application procedure.

There are a few hazards to using a co-signer on your mortgage. For example, since the co-signer is responsible for your mortgage, they take a significant financial risk. If you fail to make your monthly mortgage payments, your co-signer will be held financially liable. As a result, most co-signers are usually family members.

There’s a danger for you as well. Most of the time, your lender will want your co-signer to take part ownership in the house, which means their name will be on the title. This ownership interest might lead to disputes between the co-signers when it comes time to sell the property.

Another alternative to consider for how to get a mortgage with bad credit in Canada is a joint mortgage. Unlike co-signing a mortgage, a joint mortgage typically involves two or more people owning and living in the same house.

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6. Cross Collateralization

Consider including a friend or family member’s property as cross collateral if you are looking for how to get a mortgage with bad credit in Canada and can’t provide the larger down payment required for clients with credit issues.  

In many situations, the overall loan to value ratio is calculated based on both properties and their associated loans. This lowers the combined LTV, which will allow you to put down a smaller down payment and get better terms on your mortgage interest rate.

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7. Work Towards Your Next Renewal

After considering all these techniques on how to get a mortgage with bad credit in Canada, your next ball game is to work towards your next mortgage renewal. At the end of your term, you can renegotiate any bad credit mortgage. Most terms are five years long, which is plenty of time to get your finances back on track.

Between the commencement of your mortgage contract and the renewal date, try to boost your credit score. You may raise your credit score enough to move from a B-lender to an A-lender by following the guidelines above. This will result in a lower overall interest rate, which could save you thousands of dollars in interest.

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Pros of Getting a Bad Credit Mortgage

Approvals are Quick and Simple

You will not be able to obtain a mortgage from an A lender like a bank or a monoline company if your credit is bad. As a result, your mortgage broker would assist you in being accepted by either an alternative lender or a B-lender, such as a trust company or credit union. Getting approved by this sort of lender is faster and needs less documentation than getting approved by a bank.

Canadian private mortgage lenders are also more convenient and faster in terms of approval since they require the tiniest information possible, focusing on the value and marketability of the property. Your application for a bad credit loan can be accepted and funded by a Canadian private lender in as little as 48 hours after your mortgage broker has submitted it.

No Minimum Credit Check Required

If your credit is extremely bad, you may be better off applying with a lender that does not perform a credit check. These lenders are typically individual investors. These businesses specialize in providing capital to individuals with bad credit for home loans depending on their criteria.

Bad Credit Mortgages can Assist You in Boosting Your Credit Score for the Future

Borrowers with horrible credit might be able to repair and boost their scores by obtaining bad credit loans from an alternative lender or even a private lender, making monthly payments on time, and maintaining a budget. Limiting your unnecessary purchases to only the cash available on your bank cards rather than using credit is one method to help raise your score.

You can ask for a larger mortgage and utilize part of the surplus cash to pay down some higher-interest obligations, which will reduce your monthly payment and help you consolidate them into one smaller bill. If you use the freed-up money flow and pay off the debt principle, you may be able to qualify for a better mortgage rate in a year or two.

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Cons of Getting a Bad Credit Mortgage

High-Interest Rates

Bad credit mortgages usually come with high-interest rates because these types of mortgages are considered riskier than regular mortgages. These loans do not require good credit scores, so therefore, the interest rates will be higher than regular mortgages. 

Often, paying off a bad credit mortgage early and getting a better rate mortgage in the future is the best option. 

An A-lender may charge a borrower with excellent credit 1.59 percent in 2021, whereas a B-lender may demand rates of up to 3.49 percent from someone with fair credit. Some private lenders provide rates starting at 6.99% to people with bad credit, while others don’t check your credit and offer you a rate starting at 7.99%.

Additional Fees

Borrowers with bad credit are obliged to pay higher charges on their loans than borrowers with solid credit. In Canada, banks and other top-rated lenders pay mortgage brokers directly. Private lenders and some other alternative lenders tend to avoid paying the brokers. 

As a result, in most situations, when an alternate lender is required, the mortgage brokerage will charge a separate broker fee to the borrower. The fee is charged against the mortgage loan and does not have to be paid upfront.

For private lenders, these institutions charge both a lender fee and an interest rate to the borrower. These lender costs are now included in the mortgage advance rather than paying the borrower after closing.

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How Long Can a Bankruptcy Affect Your Mortgage Application?

In Canada, negative information, such as bankruptcies, may remain on your credit report for up to six years. This implies that even if you had a bankruptcy several years ago, your mortgage lender would still see bad credit data. Some negative credit information, such as consumer proposals and debt management plans, may be removed sooner.

Declaring bankruptcy will make it extremely difficult to obtain a mortgage for the next six to seven years. Even minor transgressions, like having non-sufficient funds (NSF) on a cheque, can remain on your credit report for up to six years.

You can keep the information good in your credit report for a long time if you make timely payments. Being responsible with debt will improve your credit score and demonstrate to potential lenders that you can manage a mortgage.

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How Long a Bankruptcy Stays on Your Credit Report in Canada

TransUnion Credit Bureau

Province	Duration
Quebec	7 Years
Ontario	7 Years
New Brunswick	7 Years
Prince Edward Island	7 Years
Newfoundland and Labrador	7 Years
Other Provinces (Alberta, British Columbia (BC), Manitoba, Nova Scotia, Saskatchewan, and New Brunswick).	6 Years

Equifax Credit Bureau

Province	Duration
Provinces that have a discharge date	6 Years after the discharge date
Provinces that have no discharge date	7 Years after Bankruptcy

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5 Overall Tips to Increase Your Mortgage Approval Chances

1. Check Your Credit Report for Free

Check for errors on your credit reports with a free online credit score source and thoroughly review them. Contact Equifax, or TransUnion if you find an error or an outdated item — typically seven years but sometimes longer for bankruptcies, liens, and judgments. Each credit bureau has its own procedure for correcting errors and out-of-date information.

2. Make a Budget to Avoid Getting into Debt

To enhance your credit score, keep track of what you spend so you don’t rack up debt. A budget that records income and expenses is the easiest way to do this. Look for ways to save small amounts of money; they add up over time. The best personal finance software or budget apps can help you achieve this.

3. Make all Payments in Full and on Time

This is the ideal standard of creditworthiness. Make a practice of making bill payments on time. By doing so, you’ll be able to avoid late charges and other expenses that are avoidable.

4. Save Funds

Set aside funds every week or pay period, and aim for at least $400 in savings to begin. To buy a house, you’ll need savings not just for a down payment but also for closing costs, so forming the habit of saving regularly can help you now and when you’re ready to look for houses.

5. Be Cautious about Canceling Your Credit Cards

Closing a credit card can hurt your credit score. How? When you cancel a card, your remaining credit shrinks, lowering your borrowing power and, more significantly, your credit utilization ratio (how much credit you have used in comparison to your total credit availability.

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The Bottom Line: How to Get a Mortgage with Bad Credit in Canada

If you have bad credit, consider why this is the case and take steps to correct the behaviours that resulted in a poor credit score. Changing your habits will simultaneously improve your financial situation while also qualifying for lower interest rates on your mortgage.

You can still get approved for a mortgage despite having bad credit. You just need to know the proper steps before applying for your mortgage. If you want to know how to get a mortgage with bad credit in Canada, the techniques we listed in this article will help.

It’s smart to shop around for the best interest rates and terms. Shop around online, compare your options with local lenders, and seek out any applicable financing programs. 

Make sure you read your mortgage paperwork carefully and run the numbers to ensure that your monthly mortgage payments stay within your budget.

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