Getting a mortgage with bad credit in Canada is possible. Lenders consider your full financial profile, not just your credit score. With the right steps, you can improve your chances of approval and reduce your borrowing costs. This guide explains how to get a mortgage with bad credit and how to raise your credit score to buy a home in Canada.
What Is Considered Bad Credit in Canada?
In Canada, credit scores range from 300 to 900. Lenders use these scores to assess your risk.
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300–579 = Poor
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580–669 = Fair
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670–739 = Good
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740–799 = Very Good
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800–900 = Excellent
If your score is below 600, most major banks will not approve your mortgage application. However, alternative lenders may still approve you with different terms.
Step 1: Check Your Credit Report
Start by reviewing your credit report. You can request a free copy from Equifax Canada or TransUnion Canada. Check for errors. Make sure all account details are correct. Dispute any mistakes. A clean report helps lenders trust your application.
Step 2: Understand What Affects Your Credit Score
Your credit score depends on five key factors:
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Payment history (35%) – Make all payments on time. Late or missed payments hurt your score.
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Credit use (30%) – Keep your balances low. Use less than 30% of your credit limit.
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Credit history length (15%) – Older accounts help your score. Keep them open if possible.
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New credit (10%) – Limit how often you apply for credit. Too many inquiries lower your score.
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Credit mix (10%) – A mix of credit cards, loans, and lines of credit can help.
Focus on improving these areas before applying for a mortgage.
Step 3: Save for a Larger Down Payment
A larger down payment lowers the risk for lenders. It also improves your chances of approval with bad credit.
In Canada, the minimum down payment is:
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5% for homes under $500,000
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10% for the portion between $500,000 and $999,999
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20% for homes over $1,000,000
If your credit is low, many lenders will require at least 20%, even for lower-priced homes. The more you can put down, the better.
Step 4: Work with a Mortgage Broker
A mortgage broker helps you find lenders that accept low credit scores. Brokers have access to multiple lenders, including:
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B-lenders – These lenders accept lower credit scores and offer competitive rates.
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Private lenders – These lenders focus on income and property value. They often accept very low scores but charge higher rates.
A broker explains your options, compares offers, and supports your application. The broker gets paid by the lender, not by you.
Step 5: Show Stable Income
Lenders want proof that you can afford the mortgage payments. Provide documents that show steady income, such as:
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Recent pay stubs
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Job letters
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Bank statements
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Tax returns
If you are self-employed, show consistent deposits and business records. Proving income helps reduce the lender’s concerns about your credit score.
Step 6: Reduce Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio compares your monthly debts to your gross income. Lenders in Canada prefer a DTI ratio below 40%.
To lower your DTI:
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Pay off credit cards
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Reduce loan balances
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Postpone large purchases
A lower DTI ratio makes your application stronger, even with a lower credit score.
Step 7: Get a Co-Signer
A co-signer with good credit and stable income can strengthen your application. The co-signer shares legal responsibility for the mortgage. If you miss payments, the lender can collect from the co-signer.
Choose someone who understands the risks. Use this option only if you both agree to the terms.
Step 8: Consider Alternative Lenders
If banks reject your application, consider alternative lenders. These lenders include trust companies, credit unions, and private lenders.
Pros:
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Easier approval
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Flexible credit requirements
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Faster decisions
Cons:
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Higher interest rates
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Shorter terms
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More fees
Use this option to get into the market while working to improve your credit. You can refinance later with a traditional lender once your credit improves.
Step 9: Rebuild Your Credit Score
Before applying for a mortgage, spend time improving your credit. Focus on small, consistent actions:
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Pay all bills on time
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Use less than 30% of your available credit
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Keep old accounts open
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Avoid new applications
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Set up automatic payments
Improving your credit can take six months to a year. Even a 50-point increase can help reduce your interest rate and expand your lender options.
Step 10: Use a Secured Credit Card
A secured credit card helps you rebuild credit. You provide a deposit that sets your limit. Use the card for small purchases. Pay the balance in full every month. The card provider reports your activity to credit bureaus. This builds a record of on-time payments.
Step 11: Avoid High-Risk Lenders
Some lenders charge very high rates and fees. They may advertise easy approval but include expensive conditions. Read all contracts carefully. Watch for:
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High up-front fees
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Short repayment periods
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Interest rates above market levels
Ask questions before signing. If unsure, speak with a mortgage broker or legal advisor.
Step 12: Understand Mortgage Insurance Rules
In Canada, if your down payment is below 20%, you must get mortgage insurance through one of the following:
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CMHC (Canada Mortgage and Housing Corporation)
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Sagen
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Canada Guaranty
These providers require a minimum credit score of 600. If your score is lower, you must provide at least 20% down and work with a non-insured mortgage option.
Step 13: Prepare for Extra Costs
A bad credit mortgage may include higher costs, such as:
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Increased interest rates
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Broker fees
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Lender fees
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Legal fees
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Property appraisal
Budget for these costs before applying. Do not borrow the maximum you qualify for. Leave space for taxes, insurance, and repairs.
Conclusion
Getting a mortgage with bad credit in Canada is possible. You need to prepare your finances, improve your credit score, and explore all lender options. Focus on saving for a larger down payment, showing reliable income, and lowering your debts. Work with a mortgage broker to find lenders who accept your situation.
Improving your credit before applying helps lower your rates and increase approval chances. Stay consistent and patient.
If you’re ready to take the next step, contact a trusted Canadian mortgage broker. A clear plan today can lead to homeownership tomorrow.