You can still qualify for a mortgage in Canada even with a low credit score by choosing the right lender and adjusting your strategy to match your credit profile. Alternative lenders, B‑lenders, or private mortgages can get you into a home when major banks won’t, though expect higher rates and larger down payments.
This article walks you through the practical options that match different credit situations and shows how to improve your approval chances with concrete steps like boosting your down payment, fixing credit errors, or using a co‑signer.
You’ll learn which paths tend to work fastest, what trade‑offs to expect, and how to decide the best route for your situation so you can move from uncertainty to a clear mortgage plan.
Bad Credit Mortgage Options in Canada
You can still get a mortgage with a low credit score by choosing lenders and terms that accept higher risk. With a bad credit mortgage Canada option, expect higher interest rates, stricter documentation, and larger down payments compared with prime mortgages.
Alternative Lenders for Bad Credit Mortgages
Alternative lenders include B-lenders (trust companies and credit unions that operate outside the big banks) and private lenders (individuals or companies offering short-term financing). B-lenders typically offer insured or uninsured mortgages with rates higher than major banks but lower than most private lenders.
Private lenders move fastest and approve based on equity and income rather than credit score, but they charge substantially higher rates and fees and often require shorter amortization or balloon payments.
When you compare options, look at:
- Interest rate and expected amortization
- Origination and legal fees
- Prepayment penalties and term length
Get written rate quotes and ask for total cost examples over the mortgage term.
How to Qualify for a Bad Credit Mortgage
Lenders will weigh your current income stability, employment history, total debt-service ratios, and the quality of your down payment alongside your credit history. Provide recent pay stubs, a letter of employment, bank statements, and explanations for past credit problems (collections, bankruptcies, consumer proposals).
Co-signers or a strong rental or employment history can improve approval chances.
If you previously declared bankruptcy, expect waiting-period rules: many B-lenders require 1–3 years since discharge; private lenders may fund sooner if you have significant equity. Always disclose all liabilities—undisclosed debt often kills approvals.
Down Payment Requirements for Bad Credit Borrowers
You typically need a larger down payment than the 5% minimum insured by CMHC. Expect at least 10–20% from B-lenders for conventional mortgages when your credit is weak. Private lenders often require 25% or more, especially if your score is very low or you lack documented income.
Using gifted funds is sometimes acceptable, but lenders will require a letter from the donor and proof of transfer. If you can raise a bigger down payment, you’ll lower your loan-to-value ratio, reduce interest costs, and expand lender options.
Improving Approval Chances for a Bad Credit Mortgage
Focus on measurable actions that lenders value: raise your credit score, supply clear proof of income and assets, or add a qualified co-signer to reduce perceived risk.
Improving Your Credit Score
Check your credit reports with Equifax and TransUnion and correct any errors immediately. Dispute inaccurate items online and follow up in writing; lenders often re-run reports before final approval.
Pay down high-interest revolving balances, especially credit cards, to lower your credit utilization below 30%. Set up automatic minimum or full payments to eliminate missed payment marks going forward.
Keep older accounts open to preserve average account age and avoid opening multiple new accounts in a short period. If you have recent collections, negotiate a paid‑for‑delete or settlement that the creditor will remove from your report in writing.
Providing Additional Documentation
Prepare clear, recent pay stubs (last 3 months), T4s or notice of assessment (2 years), and bank statements (3 months). Self‑employed borrowers should include a year‑to‑date profit/loss, GST/HST returns, and accountant‑prepared financials.
Document large deposits and explain one‑time income sources in writing. Lenders flag unexplained funds; provide a gift letter, sale agreement, or transfer records when applicable.
Show proof of down payment source and liquid reserves after closing. Include rental agreements or CRA letters for additional income. Organized, labeled documents speed underwriting and increase lender confidence.
Using a Co-Signer
A co‑signer with strong credit and stable income reduces lender risk and can lower your required interest rate. The co‑signer must understand they are equally liable for mortgage payments and any default will affect their credit.
Choose a co‑signer with steady employment and a low debt‑to‑income ratio; lenders typically re‑assess the co‑signer’s credit and income during underwriting. Consider alternatives like a guarantor mortgage or family pledge if full co‑signing isn’t possible.
Get a written agreement with the co‑signer about responsibilities and intent for future removal. Plan for refinancing or reapplication once your credit and equity improve so the co‑signer can be released.
