Can I Get a Mortgage With Bad Credit in Canada? Your Options
Do you have bad credit and want to take out a mortgage? The good news is that there are still options. People with bad credit can still get mortgages. It might seem impossible, but many Canadians are in the same situation, and lenders understand. Here's what you need to know about securing a mortgage even with a less-than-perfect credit history.
Understanding Bad Credit in Canada
Credit is your financial trustworthiness, measured by a 3-digit numerical value known as a credit score. Credit scores in Canada range from 300 to 900. They are calculated based on scoring models that weigh common components, which vary based on the company providing the credit score, their data, and the calculation.
Why is it Harder to Get a Mortgage with Bad Credit?
Lenders view individuals with low credit scores as higher-risk borrowers. This is because a lower score often indicates a history of missed payments or high debt, making them concerned about your ability to repay the mortgage. This increased risk leads to stricter lending criteria.
Where to Find a Mortgage with Bad Credit
You won’t be able to find a bad credit mortgage at one of Canada’s Big 6 banks. They typically have stricter guidelines for mortgage approvals. Instead, you can turn to the country’s B lenders, credit unions, and mortgage investment corporations (MICs). These institutions specialize in providing mortgage solutions for borrowers who don't qualify for traditional financing.
Options for Getting a Mortgage with Bad Credit in Canada
Here are some ways to still get a mortgage with a bad credit score:
- B Lenders: These lenders often work with borrowers who have lower credit scores and are willing to offer mortgages at potentially higher interest rates to offset the increased risk.
- Credit Unions: Credit unions are often more flexible than traditional banks and may be willing to work with borrowers who have bad credit, especially if you are a member.
- Mortgage Investment Corporations (MICs): MICs pool funds from investors and lend them to borrowers. They are more willing to take on higher-risk mortgages, but often at higher interest rates and fees.
- Private Lenders: These are individuals or companies who lend money secured by a mortgage. They often have the most flexible requirements but also the highest interest rates.
- Consider a Co-Signer: Having a co-signer with good credit can significantly increase your chances of getting approved for a mortgage. The co-signer agrees to be responsible for the mortgage if you default.
- Increase Your Down Payment: A larger down payment reduces the lender's risk, making them more likely to approve your mortgage application, even with bad credit.
- Work with a Mortgage Broker: A mortgage broker specializes in finding the best mortgage rates and terms for your specific situation. They can help you navigate the options available for borrowers with bad credit.
What to Expect: Interest Rates and Fees
Be prepared to pay higher interest rates and fees when securing a mortgage with bad credit. Lenders charge higher rates to compensate for the increased risk. Carefully compare offers from different lenders and factor in the total cost of the mortgage, including fees, before making a decision.
Improving Your Credit Score for the Future
While you can get a mortgage with bad credit, it's essential to start working on improving your credit score for the future. This will open up more options and allow you to secure better interest rates when you refinance or apply for other loans. Pay your bills on time, reduce your debt, and avoid applying for too much credit at once.
Getting Started
Getting a mortgage with bad credit is possible in Canada. By exploring your options and working with a reputable lender or mortgage broker, you can find a solution that works for you. Remember to focus on improving your credit score to unlock better terms in the future.