Do you dream of buying a home, but your bad credit score is standing in the way? Many Canadians get turned down by their bank when they apply for a mortgage because of a low score. So the real question is, can you buy a house with bad credit in Canada, and if so, how? The short answer is yes, often through a B-lender mortgage from a credit union, private lender, or MIC, and knowing how to apply for a mortgage with bad credit makes the process a lot less intimidating.
Key Points
1. It is possible to get a bad credit mortgage in Canada, but bad credit may get in the way of approval with traditional lenders like banks.
2. If you have bad credit, you will usually have better luck with a B-lender, which is a non-bank lender such as a credit union, a private lender, or a MIC.
3. A bad credit mortgage almost always comes with a higher interest rate, extra fees, and a larger down payment, so it costs more than a standard mortgage.
4. A bigger down payment, a co-signer, a mortgage broker, and a stronger income can all improve your chances of approval.
Can You Get A Mortgage With Bad Credit?
Yes, you can still get a mortgage with bad credit. Getting one from a bank (an A-lender) is hard, since banks generally want a credit score of around 660 to 680, but you are not limited to the banks. B-lenders, which include credit unions, private lenders, and mortgage investment corporations (MICs), will work with bad credit, and they place more emphasis on your overall financial stability than on your credit score alone.
What Is Considered Bad Credit In Canada?
Mortgage lenders use your credit score to evaluate you as an applicant. So if you have bad credit, it can affect your mortgage terms, or even your ability to get a mortgage at all. But what actually counts as bad credit? For context, the average credit score in Canada is about 6792, so scores well below that are where your options start to narrow.
In Canada, credit scores range between 300 and 900. Where your score falls within this range determines your credit health. The bands below reflect the commonly used Equifax model, so your exact standing can differ slightly with TransUnion.
| Credit Rating | Score Range |
|---|---|
| Excellent | 760 and above |
| Very Good | 725 to 759 |
| Good | 660 to 724 |
| Fair | 560 to 659 |
| Bad | Below 560 |
Generally, anything below 560 is considered bad credit, and once you are in that range, most banks will turn down a mortgage application.
How To Check Your Credit Score In Canada
It is a good idea to check your credit score before you apply for a mortgage, or any loan for that matter. You can check it for free through several places, including the ones below.
| Cost | Credit Score | Credit Report | ||
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | - |
You can also get your score directly from the two credit bureaus in Canada, Equifax and TransUnion. While you are there, review your credit report for errors, such as accounts that are not yours or payments wrongly marked late, and dispute any mistakes with the bureau. Correcting an error can give your score a quick lift before you apply.
Where Can You Get A Bad Credit Mortgage In Canada?
Your credit score matters a lot when you are buying a home, but a less than perfect score does not shut you out. The good news is you still have options, and which lender you can work with mostly comes down to how low your score is.
| Lender | Type | Typical Minimum Credit Score | What To Expect |
|---|---|---|---|
| Banks | A-lender | Around 660 to 680 | The lowest rates but the strictest approval, which makes them tough with bad credit. |
| Credit unions | B-lender | Around 600 and up (varies) | Member-owned and often a little more flexible than a big bank. |
| Private lenders | B-lender | No set minimum | Lend mainly on your home’s equity, with higher rates plus fees of 1% to 3% and short terms. |
| MICs (mortgage investment corporations) | B-lender | No set minimum | Pool investor money to lend based on equity, at a cost similar to private lenders. |
Alternative lending is more common than you might think. In Ontario, private lenders alone accounted for about 15.8% of all mortgages in 20241.
Banks (A-Lenders)
Banks are A-lenders and usually require good credit, so they are the hardest option with a low score. If your credit is strong enough they offer the best rates, but a bad score will typically mean a decline.
B-Lenders: Credit Unions, Private Lenders, And MICs
If a bank turns you down, B-lenders are your alternative. B-lender is an umbrella term for non-bank lenders, including credit unions, private lenders, and mortgage investment corporations (MICs). They are more willing to work with bad credit because they weigh your overall financial picture, and for private lenders and MICs your home equity, more heavily than your score. Many private lenders and MICs are also not bound by the federal mortgage stress test the way banks are, which can make qualifying easier, though a higher rate is the trade-off.
- Credit unions are member-owned and often a little more flexible than a big bank, so one is worth a conversation if your score sits on the higher end of the bad credit range.
- Private mortgage lenders and MICs lend mainly against your home equity and are the easiest to qualify with, but they cost the most, with higher rates and lender fees of 1% to 3% or more. They work best as a short-term bridge toward a traditional mortgage later. Related options include subprime mortgages and other forms of alternative mortgage financing.
Things To Help You Get A Mortgage With Bad Credit
While it will not be as easy or affordable to buy a house with bad credit, there are a few things that can meaningfully improve your chances of approval.
Add A Co-Signer Or Co-Borrower
A co-signer is a guarantor who promises to take responsibility for the mortgage if you default, which greatly reduces your risk in the lender’s eyes. A co-borrower goes a step further and shares ownership and responsibility for the mortgage with you. Either one, especially someone with strong credit and income, can improve your chances of approval and help you access a lower interest rate.
Make A Higher Down Payment
The higher your down payment, the less risk the lender takes on. A bigger down payment means you own more equity upfront and borrow less relative to the property value, which reduces risk and increases your likelihood of approval. It can also earn you a better rate and a shorter payment period.
Get Help With Your Down Payment
If saving the down payment is the real hurdle, a few programs can help you get there, and none of them depend on your credit score. A First Home Savings Account (FHSA) lets you save for a first home tax-free, the RRSP Home Buyers’ Plan lets you withdraw up to $60,000 from your RRSP toward a first home, and some provinces and municipalities offer down payment assistance for first-time buyers. These are worth exploring while you work on your credit.
Work With A Mortgage Broker
A mortgage broker can help you find a lender who accepts bad credit. In fact, some private lenders are only accessible through a broker. A broker can quickly compare lenders willing to work with your financial and credit situation, and can negotiate on your behalf to get you a better rate and terms. For bad credit especially, a broker is often the fastest path to approval.
Other Factors You Can Improve To Get Approved
Your credit score is only one piece of the puzzle. Bad credit lenders weigh several other factors, and strengthening these can offset a low score.
Your Loan-To-Value (LTV) Ratio
Loan-to-value is the size of your mortgage compared with the home’s value. A larger down payment gives you a lower LTV, which lowers the lender’s risk. With bad credit this matters a lot, because if your score is under 600 you cannot get default insurance and will need a down payment of at least 20%, putting your LTV at 80% or lower. The lower your score, the more equity alternative lenders tend to want. As a rough guide, a score around 550 may call for about 25% down, and around 500 closer to 35%.
Your Debt-To-Income (DTI) Ratio
Lenders look at how much of your income already goes toward debt. If a high share is committed to other debts, you have less room for a mortgage payment. Generally, lenders want a DTI ratio (also called your total debt service ratio) of 44% or lower, though the exact number varies by lender. Paying down existing debt before you apply can help.
Your Income And Employment Stability
Lenders want to be confident you can pay them back, and your household income is often more important than your credit score. A stable job and a steady, confirmable income, one you can verify through your Canada Revenue Agency Notice of Assessment, gives you a better shot at approval and a better rate. If your income is non-confirmable, common for self-employed or commission-based workers, lenders will average your income over recent years. Boosting your income, even with a side gig, can also lower your DTI and strengthen your application.
The Property Value
Property value matters most when you are working with subprime and private lenders. The home you buy has to be appraised to confirm its value, because if a lender is cautious about your credit, they want to know the property is worth the investment. A solid, marketable home makes approval easier.
What If You Are A Newcomer With No Credit History?
If you are new to Canada, you may have little or no Canadian credit history. That is not the same as bad credit, but it can create similar hurdles because lenders have no record to assess. The good news is that many lenders, including some banks, offer newcomer mortgage programs designed to look past a short Canadian credit history.
You can strengthen a newcomer application by offering a larger down payment, showing steady and verifiable income, providing international credit history where possible, and documenting a track record of paying rent and utilities on time. Opening a secured credit card and using it responsibly is also one of the fastest ways to start building a Canadian credit score.
Alternatives To A Bad Credit Mortgage
If you cannot qualify yet, or you would rather build your credit first, a couple of alternatives can still get you into a home.
Rent-To-Own
A rent-to-own program is a way into the housing market if you cannot afford a down payment or qualify for a traditional mortgage. You enter an agreement with a landlord or rent-to-own company, and part of your monthly rent goes toward a future down payment. A contract usually lasts one to five years, and at the end you can either walk away or buy the home at a price agreed on up front. Making those payments on time can also build your credit, so you may qualify for a traditional mortgage by the time the contract ends.
Vendor Take-Back Mortgage
With a vendor take-back mortgage, the seller lends you part of the purchase price directly, which can bridge a gap when a lender will not cover the full amount. It is less common, but it can be an option when both you and the seller are motivated.
Pros And Cons Of Getting A Mortgage With Bad Credit
Buying a house with bad credit can be a good move if you are financially sound or want to take advantage of a good buy before your score improves, but there are trade-offs to weigh.
Pros
- Buy a home sooner. Improving your credit takes time. If you cannot wait, a bad credit mortgage can get you into the market sooner.
- Build home equity. The sooner you own, the sooner you build equity, which you can later tap through a HELOC or home equity loan.
- Boost your credit score. Making your mortgage payments on time every month steadily improves your credit, which may help you refinance into a better rate later.
Cons
- Higher interest rates. A bad credit mortgage almost always comes with a higher rate, often 2 to 5 percentage points above a prime mortgage, especially from private lenders, which makes the mortgage more expensive.
- Higher fees. Alternative and private lenders often charge extra fees on top of the rate.
- Larger down payment. B-lenders and private lenders usually require more down, so the 5% minimum on some traditional mortgages will not apply.
Note: Be Wary Of “Guaranteed Approval”
You may see ads for bad credit mortgage loans with guaranteed approval. No legitimate lender can truly guarantee a mortgage before reviewing your finances and the property. Treat guaranteed approval promises, large upfront fees, or pressure to act fast as red flags, and stick with licensed lenders and brokers.
Bottom Line
If you are struggling with bad credit and want to buy a home, building a solid financial base and a better credit score should be your top priority. That said, you can still get a mortgage with bad credit. Plenty of alternative lenders may be willing to work with you if the bank has turned you down, and a bigger down payment, a co-signer, or a mortgage broker can tip the odds in your favour.
Bad Credit Mortgage FAQs
Can I buy a house with a credit score of 500?
Are there bad credit mortgage loans with guaranteed approval?
Can I get a mortgage if I had a bankruptcy?
Where can I check my credit score?
What credit score is considered bad?
References
- Financial Services Regulatory Authority of Ontario. (2025). Private residential mortgage lending in Ontario report 2024. https://www.fsrao.ca/media/28331/download
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
