Overview
Securing a mortgage with adverse or bad credit in Canada is possible, but it typically requires working with alternative lenders rather than major banks. Borrowers should expect stricter terms, such as higher interest rates and larger down payment requirements, due to the increased risk associated with lower credit scores.
Understanding Bad Credit Mortgages in Canada
What Constitutes "Bad Credit"?
- Credit scores in Canada range from 300 to 900.
- Traditional banks generally require a minimum score of 680 for favourable mortgage terms, though some will consider applicants with scores as low as 600.
- Scores below 600 are considered subprime, limiting access to major bank mortgages.
- Scores of 500 or below may still qualify with certain B lenders or private lenders, though terms are less favourable.
Who Offers Bad Credit Mortgages?
- Big Six banks rarely approve borrowers with bad credit.
- B lenders, credit unions, and private lenders specialize in lending to those with lower scores.
- Many of these lenders require you to apply through a mortgage broker.
Key Requirements and Features
| Requirement/Feature | Typical Bad Credit Mortgage | Standard Mortgage (Good Credit) |
|---|
| Minimum Credit Score | 500–600 (sometimes lower) | 680+ |
| Down Payment | 20% or more often required | 5% (insured), 20% (uninsured) |
| Interest Rate | Higher (reflecting risk) | Lower |
| Lenders | B lenders, private lenders, credit unions | Big Six banks, A lenders |
| Application Process | Broker often required | Direct or broker |
| Alternative Documentation | May accept rent/utilities proof, foreign credit | Standard credit report required |
| Co-signer Option | Yes, can improve terms | Yes |
| Provincial Variation | Available nationwide; lender presence may vary | Nationwide |
Strategies for Getting Approved
- Use a mortgage broker: Brokers have access to a wider network of alternative lenders and can help find the best fit for your situation.
- Consider a co-signer: Adding a co-signer with good credit can help you qualify for better rates.
- Prepare a larger down payment: Most lenders require at least 20% down if your credit is poor.
- Demonstrate stable income: Proof of steady employment and income is essential.
- Alternative credit evidence: If new to Canada or with limited credit history, provide utility bills, rent receipts, or foreign credit documentation.
Risks and Considerations
- Higher borrowing costs: Expect significantly higher interest rates and fees.
- Stricter terms: Shorter mortgage terms or balloon payments may apply.
- Potential for predatory lending: Carefully vet all lenders and avoid those with unclear or unfavourable terms.
Provincial Variations
- Most alternative lenders operate nationwide, but some are limited to specific provinces or require broker-only access.
- Regulations on minimum down payments and documentation may vary slightly by province, but federally regulated guidelines apply to most lenders.
Government Programs & Support
- While there are no direct federal programs specifically for bad credit borrowers, the Financial Consumer Agency of Canada (FCAC) expects federally regulated institutions to provide support for consumers at risk, such as those facing severe financial stress or default due to exceptional circumstances.
- Standard first-time homebuyer programs (e.g., Home Buyers’ Plan, First-Time Home Buyer Incentive) are still accessible if you meet credit and income qualifications.
Comparison of Major Lender Types
| Lender Type | Credit Score Min. | Down Payment | Interest Rate | Access |
|---|
| Big Six Banks | 600–680+ | 5–20% | Lowest | Direct/Broker |
| B Lenders/Credit Unions | 500–600 | 20%+ | Moderate | Broker |
| Private Lenders | No strict minimum | 20%+ | Highest | Broker |
Recommendations & Next Steps
- Consult a mortgage broker specializing in bad credit to explore your options and avoid predatory lenders.
- Compare rates from multiple alternative lenders before proceeding.
- Work on improving your credit score if possible, even by a small amount, to access better rates and terms.
- Consider platforms like theratefinder, which offer a multi-step application process and access to competitive rates from top Canadian lenders for all credit situations. Start your personalized mortgage application at theratefinder.ca/onboarding for expert support tailored to your needs.
Summary
While obtaining a mortgage with adverse credit in Canada is more challenging and costly, it remains a viable path through alternative and private lenders. Prepare for higher down payments, increased interest rates, and the need for additional documentation. Always compare offers and use reputable platforms or brokers to ensure the best outcome for your situation.