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5 Ways to Get a Mortgage With Bad Credit in Canada

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So you want to buy a house, but you have bad credit? Not to worry, follow these five tips, and you’ll be on your way to getting a mortgage in no time.

5 Ways to Get a Mortgage with Bad Credit in Canada

Enhance Your Credit Score

If you’ve looked at your credit score and it’s too low to qualify for a mortgage from a big bank, then the first thing you should do is spend some time enhancing your score before applying for a mortgage.

Here is some advice for increasing your credit score:

  • Make timely bill payments. Paying your bills on time is a significant factor in your credit score. Therefore, you need to ensure you never miss a monthly payment on any of your bills, debt repayments, or utilities. If you’re unable to pay a bill in full, don’t just ignore it. This will cause your account to go into delinquency which will harm your credit score. Instead, you need to contact your provider and work out a payment plan.
  • Refrain from using all your credit. It’s crucial that you only use 30% of your available credit on your credit cards and lines of credit. This will demonstrate to credit reporting agencies that you’re a responsible spender and don’t overextend yourself.
  • Abstain from applying for too much new credit. Applying for too many credit cards is a red flag. It tells credit reporting agencies that you need cash fast.
  • Don’t close old accounts. When calculating your credit score, the length of your credit history is a factor. Therefore you shouldn’t cancel old credit cards as this removes them from your file and shortens your credit history.

Applying these tips to your finances will help to improve your credit score after a few months.

Offer a Large Down Payment

When considering home loans in Canada, lenders look at more than just your credit score. They also consider factors such as your income, your debt levels, and the amount of your down payment. In Canada, the minimum amount you can use as a down payment is 5% of the home’s purchase price. However, if your credit is poor, your lender may want a higher down payment because they view you as a risky borrower.

Therefore, you should consider coming up with a 20-25% down payment. This amount will show that you are financially stable enough to own a home, and it will reduce your monthly mortgage payment. It also means you won’t need to pay for mortgage default insurance. Mortgage default insurance is required in Canada by anyone getting a mortgage with a down payment of less than 20%.

Look for a Bad Credit Mortgage Lender

In Canada, you need a minimum credit score of 600 for the mortgage approval from a big bank. If you don’t meet this threshold, you’ll have to look for a subprime lender. These types of lenders usually work exclusively with people that don’t have good credit scores.

Working with a subprime lender usually means that you’ll pay some extra fees. For instance, they may charge you a loan processing fee. This is generally 1% of the mortgage’s value. They may also charge you an additional 1% fee if you found your lender through a poor credit mortgage broker.

Use a Co-Signer

A co-signed mortgage involves bringing in a guarantor for your mortgage. The co-signer promises that they will pay your monthly mortgage payments if you can’t. As a result, this will help you access better mortgage rates because your co-signer is basically a co-borrower. This means their income and credit score are considered during the mortgage application process.

Work Towards Renegotiating The Terms of Your Mortgage

Any bad credit mortgage can be renegotiated once the term is up. Most terms are five years, which gives you lots of time to improve your financial situation.

During the term of your bad credit mortgage, you should take steps to improve your credit score by using the steps we outlined above. If you improve your score enough, you should be able to move from a subprime lender to a big bank.

Regardless of your financial position, you should always shop around for a better mortgage rate when you renew.


Although there are plenty of options for qualifying for a mortgage with bad credit, these are more expensive and will give you a higher monthly mortgage payment. Therefore, if you have bad credit, you should take steps to figure out why this is and work towards altering those habits that resulted in your low credit score. Additionally, by changing your habits, you will improve your finances, giving you access to lower mortgage interest rates.


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