For a long time, it wasn’t possible to qualify for a mortgage in Canada if you had bad credit. The subprime lending market, so popular in the United States, was almost nonexistent in Canada. Why? In the United States, customers can choose to deal with any number of large and small banks. In Canada, we deal mostly with large, regulated institutions. Things are starting to change here, though. Smaller lenders are beginning to relax their standards and become more popular even as the traditional big banks tighten their standards. The relatively small market for subprime lending is growing, as it once did in America. Now, if you have bad credit, you actually stand a chance of getting a mortgage in Canada.
How do you qualify for a mortgage in Canada if you don’t have good credit? You probably still are going to be rejected by the big banks, because your mortgage application won’t qualify for CMHC insurance. You can still try to go through a big bank. And if you do by some chance qualify for a mortgage through one of the big banks, you should consider accepting it, since the big Canadian banks are more likely to give you friendly mortgage terms and pursue a long-term relationship with you as a customer.
If you are rejected by the big banks, you will need to find a subprime lender, also called an alta- or near-prime lender, or alternative mortgage lender. There are a lot of reasons you might need a bad credit mortgage lender in Canada. Maybe you only recently moved into the country, or perhaps you are young, self-employed, or simply have no built up a credit history. You might have had a recent misfortune, and are now back on your feet. Regardless, not everybody wants to wait to purchase a house until their credit is back to normal. A lot of subprime mortgage lending is actually prime mortgage lending that isn’t qualifying for one reason or another. If that describes your situation, you could be a perfect lending candidate.
There are a number of popular online bad credit mortgage lenders in Canada and we’ll try to do a comparison for each of them below. It’s really hard to look for bad credit mortgage lenders in Canada, but there are some, which are listed below.
Premiere Home Mortgage Ltd.
- Offers mortgage funding for properties located only in British Columbia, Alberta and Manitoba
- Two day approval
- They have an online mortgage calculator to help you decide
- Up to 85% appraisal
- 5% down payment (the higher, the better)
- Need proof of income to get eligible
Canadian Mortgage Finder
- 10 year term for only 3.89% interest
- BenchMark rate: 5.24%
- Prime rate: 3.00%
- Variable rate: 2.65%
Canada Wide Financial Inc.
- No income verification
- No credit or bad credit accepted
- BBB accredited
Mortgage Brokers in Canada
One of the easiest ways to find a subprime lender who is willing to work with you, regardless of your credit, is to go through a mortgage broker. Mortgage brokers can send your information to dozens of different lenders, banks, and investors to find a match. They offer a number of services, such as loan preapprovals, often with no added cost or obligation. On mortgage broker websites, you can view current rates, and run calculations to see how much house you can afford.
Steps to Getting a Bad Credit Mortgage in Canada
- First, check your credit report to make sure that it is accurate. You don’t want to be punished for something that isn’t correct. If you spot any discrepancies, submit the corrections and proof and see if you can boost your score. Have explanations ready for the mortgage broker and any interested lenders who are curious about why your credit is so low. Good explanations include unavoidable life crises such as major illnesses or sudden, unpredictable unemployment.
- Be prepared to pay a slightly higher interest rate. Bad credit mortgages are never going to be as competitive as good credit mortgages. The terms of your loan will be harsher. It is important to shop around to make sure you are getting the lowest rates. Beware of adjustable mortgage rates; they may start low, but they typically balloon and become unaffordable (this was how the U.S. housing crash began). Likewise, be aware you may be asked to make a higher down payment. The more you are able to put down, the more likely you are to secure a good mortgage, despite your bad credit.
- Prove you have a steady, reliable income. If you don’t, you probably shouldn’t be looking for a mortgage anyway. This is really the most important aspect of your application. While subprime lenders in the U.S. often were not as concerned about this, Canadian lenders are. They know that you might have bad credit because of something your past, but that you may have a steady income in the present and a positive outlook for the future. That makes you a viable investment.
- Make sure that all your other debts are paid off, or that you can handle them alongside your mortgage without any trouble. This includes student loans, car loans, and so on.
Make Smart Life Choices – Buy What You Can Afford
While it should go without saying, it is important to make sure that you really can afford the house that you are planning to buy. In the United States, many buyers who could not really afford their homes took advantage of the low adjustable mortgage rates they were offered by subprime lenders. When those rates increased later, they fell behind on their payments, and went into foreclosure. That was how the housing bubble burst.
Is Canada in that kind of danger? Not immediately, most experts say. The reason is that even subprime lenders in Canada still have higher standards and regulations than many U.S. lenders did. They are not likely to approve you if you really cannot afford a home. It isn’t just your credit that they are looking at, but your viability overall. But this is the kind of environment where less reputable brokers may start to gain a foothold.
Does that mean you should avoid getting a subprime mortgage? Not at all. Do your math and consider all of your monthly debts (not just your bills, but also other costs associated with living), and think about your income. Is it steady enough and substantial enough to support a mortgage? What interest rate can you afford? Understand your means, and then shop within those means. Go through a mortgage broker to secure the best deal that you can. And if you don’t feel ready yet to buy a home, there is nothing wrong with waiting to build up your credit rating for a bit and making sure that you’re on stable financial ground first.