Most banks in Canada require a minimum credit score of at least 600 to get a mortgage, with the requirement even higher to qualify for an insured mortgage at 680. What can you do if you have a credit score less than 600, or even no credit score at all? Having a bad credit score doesn’t mean that you will never qualify for a mortgage, but it does mean that you have less options when it comes to mortgage lenders available for you.
You can get a mortgage with bad credit, but you most likely will not qualify for a mortgage with banks or credit unions. Instead, most people with bad credit will turn towards B-Lenders and private mortgage lenders. These mortgage lenders are more flexible and have less stringent lending requirements compared to the Big Banks, and they can help you no matter your financial situation. However, be aware that a private mortgage can be much more costly than one from a traditional bank.
Some private lenders might not even consider your credit score or income at all, and will instead look at the amount of equity that you have in your home and loan-to-value ratio. This is a good way to temporarily tide you over for a few years while you get your finances in check. Most mortgages with private lenders are short-term, and can range from a few months to a few years. You can use this time to improve your credit score, such as making regular payments on existing debt or paying off balances.
Private mortgages are costly, with private mortgage rates starting from as high as 10%. B-Lenders and private lenders may also charge additional fees to your mortgage. You can use mortgage brokers to help connect you to B-Lenders and private lenders.
If you are not able to improve your credit score, or if you have recently declared bankruptcy, you can consider other options. If you can find a co-signer, their credit score will be considered as well. This is helpful if they have a strong credit score.
If you are over 55 years old, you are eligible for reverse mortgages. Reverse mortgages have no income or credit score requirements, and there are also no mortgage payments required either. This is particularly useful for seniors as a source of income during retirement.
Renting instead of buying a home might also be a temporary solution in the meantime. If there is a particular property that you would like to purchase, but cannot afford to do so currently, rent-to-own home programs allow you to rent the home for a period of a few years, with a portion of your rent payments going towards your eventual down payment on the house. This allows you to save up money until you can afford a mortgage.
A bad credit score means that you are riskier to a lender compared to a person with a good credit score. A poor credit score might mean that your mortgage rate will be higher, you might qualify for a lower mortgage amount, or you might not qualify for a mortgage at all.
The Canada Mortgage and Housing Corporation requires a minimum credit score of 680 to be eligible for CMHC insurance. CMHC default insurance is important because insured mortgages, also known as high-ratio mortgages, can have much lower rates than traditional mortgages. Having an insured mortgage will also let you make a down payment on your home for as little as 5%. Uninsured mortgages require a down payment of at least 20%.
It might be very difficult to be able to save up a 20% down payment, let alone a 5% down payment, which is why some provinces offer down payment assistance programs for first-time homebuyers. Even so, higher mortgage rates will mean that you will be paying more if you have a low credit score. Being forced to use private lenders can mean that your rate can be multiple times higher than one from a major bank.
There are plenty of private mortgage lenders that offer bad credit mortgages in Canada. A few examples include Alpine Credits, Prudent Financial, Clover Mortgage, Canadalend, and Guardian Financing. You might be required to go through a bad credit mortgage broker in order to access some private lenders, as some may only work through brokers.
Some private lenders have no minimum credit score requirements, and some even allow you to make interest-only payments on your mortgage. This can help you keep up with your payments if you are having cash-flow issues. Making regular mortgage payments to a private lender can also help improve your credit score, making it easier to eventually refinance your mortgage at a lower mortgage rate with another lender.Find Private Mortgage Lenders in Canada