Your guide to buying a house with bad credit in Canada

You may be able to secure a mortgage, but it will be more difficult. Generally, you will need at least a fair credit score to be considered for a mortgage, although this will vary based on factors including the price of the home, the amount of the requested mortgage, and the amount of your down payment. You (or a co-signer) will need a credit score of at least 600 in order in order to be insured by the Canada Mortgage and Housing Corporation, which is a prerequisite if your down payment is less than 20% of the purchase price.

If you have bad credit, your best chance of securing a mortgage is through a B lender, a smaller mortgage lender that’s often more willing to work with those with lower credit scores or less conventional forms of income (including contract workers and self-employed workers).

Save up for a larger down payment

If you can put more down upfront, lenders may be more open to providing you with a mortgage. By offering a higher down payment, you are decreasing the amount you need to borrow from a lender, which can improve your odds of securing a mortgage.

Generally, you need to have at least 10% of the purchase price of your home as a down payment to be approved for a mortgage. If you can save up enough for 20% or more of the purchase price, you will drastically reduce the amount of money you need to borrow, increasing the likelihood of being approved by a mortgage lender.

Use a B lender

If you have bad credit, it will be difficult to secure a mortgage with one of Canada’s major banks (also known as A lenders). However, you can still apply for a mortgage with one of Canada’s so-called B lenders. One benefit of applying through a B lender is that you may get a response much quicker than with a traditional bank, as some B lenders operate entirely online, speeding up the application process. However, their rates tend to be slightly higher than A lenders because of the added risk they’re taking on. And you typically need to put at least 20% down to be approved.

Improve your credit score

One of the best ways to increase the strength of your application is to improve your credit. While you can’t reverse bad credit overnight, you can begin taking concrete steps to improve your credit score.

First, get a copy of your credit report from one of the credit bureaus — TransUnion or Equifax. See if there are any errors and if there are, get to work on asking for them to be fixed.

Other tips to improve your credit score include paying your bills on time (even paying a few days late can negatively affect your score) and reducing your debt-to-credit ratio. Your debt-to-credit ratio reflects all available credit in your name against how much you owe; if you can keep that ratio below 30% you will increase your odds of being approved for a mortgage.

Get a co-signer

If you ever had to have your parents co-sign your lease when you rented your first apartment, the process is similar when trying to buy a house with bad credit. If your credit score is low, see if your partner or a close family member will sign a joint mortgage with you. If they have a strong credit score, this will increase your odds of getting approved for a mortgage, and may also get you a lower interest rate than if you were approved with bad credit on your own.

If your credit rate is poor, you may decide to bypass applying for a mortgage from one of the big banks. Since the major banks have a longer approval process (including in-person meetings), the fastest way to buy a house with bad credit could be applying through an online B lender. Otherwise, it can take about a month or so to be approved.

The mortgage application process is similar regardless of your credit score. The lender will look through your credit history and your overall financial picture and determine if they should grant you a mortgage.

Both B lenders and private lenders are additional mortgage options for those who don’t meet the minimum credit score requirements of the major banks.

While mortgage rates at B lenders are generally only slightly higher than A lenders, mortgage loans from subprime or private lenders are even more expensive.

Private mortgage lenders are companies or individuals that offer mortgages to those who can’t secure a mortgage from an A or B lender. Their mortgage rates are higher than B lenders and they’re not regulated by the Government of Canada, which can pose potential problems if they go bankrupt.

Private lenders may also charge additional brokerage or lender fees since every private lender sets their own rules. They are seen as the “bad credit mortgage lender” and may offer shorter mortgage terms, allowing you to switch to a B lender or a major bank once your credit score improves.

Some well-known B lenders include:

Neo Financial

Neo Financial is a completely digital bank that offers a range of banking services, including mortgages. Its entire mortgage process is conducted online; you upload the requested documents and even meet with your mortgage advisor and lawyer online. Neo Financial works with a number of lenders including CMLS Financial and Home Trust and will attempt to partner you with one for your mortgage. Note that Neo Financial Mortgage is currently not available in Quebec.

Nesto

Nesto is an online-only mortgage service that works with lending organizations to help you secure a mortgage. You complete the entire mortgage process online and Nesto will provide you with the best current rates from their partners. Nesto’s mortgage specialists don’t work on commission, which helps them provide low rates to clients looking to buy a house with bad credit.

QuestMortgage

QuestMortgage is an entirely digital mortgage broker that can help you get approved. You complete the application online and can choose from fixed-rate mortgages for two, three, four, or five years, as well as variable-rate mortgages. Note that QuestMortgage is currently not available in Quebec.