Sometimes life gives us temporary setbacks that make it difficult to move forward in the long term. Illness, job loss, or a lack of credit can leave you with bad credit for years to come. It is possible to get your finances in order before your bad credit gets better though, so taking on a mortgage may be a sensible option for some. Fortunately, there are options available for those people, but they do not come cheap.

Check your Credit Score

If your score is below 680, you will likely be unable to obtain the top tier of loan rates and should prepare to make adjustments accordingly. In Canada, your score can be between 300 to 900, with a higher score being best. Your score is assigned to you by Equifax and TransUnion, Canada’s two major credit bureaus. A credit score essentially tells lenders how you have dealt with credit before. The score gives new lenders an idea of how responsible you will be with additional credit. Even if your lousy score is the result of one setback, it can still take years of good borrowing practices before it gets back up. Once your score takes a hit, be adamant about paying bills on time and paying down your debt.

Find a Bad Credit Lender

Big banks are known as “A lenders” and can be used to get a mortgage by people with credit above 600. If your score is below 600, big banks will likely not give you approval for a home loan. Instead, you will have to turn to a subprime lender or “B lender.” These institutions work almost exclusively with people that have lower credit scores. If you declared bankruptcy or have gone through with a consumer proposal within the past two years, you may need to seek a private mortgage lender. A mortgage broker should be able to connect you with a lender who is best suited to your situation.

Save a Bigger Down Payment

There are a few factors lenders consider when deciding to approve your mortgage application. Besides credit score, they will assess your income, debt level, and savings. People with good credit can get approval for a mortgage with as little as a 5% down payment because they are seen as low risk. People with bad credit are regarded as high-risk borrowers and as such, will be required to put at least 20 to 25% down. A more substantial down payment also gives you more leverage when negotiating a mortgage rate as it reduces your level of risk as a borrower. More equity put in shows you are invested in the property, and it also means your mortgage will be less overall.

Prepare for More Fees

On top of a larger down payment, you will also be paying more in fees. Lenders can charge as much as 1% of the value of the mortgage for processing a bad credit home loan application. Also, banks do not compensate brokers who bring clients with bad credit, so your broker may also charge an additional 1%. Just 2% in service charges can amount to thousands.

There will always be mortgage loan options for people with bad credit, but they come with a catch. Be aware of how much extra fees will cost you and budget for higher rates if you are sure you want to purchase a home with bad credit.

If you are looking to secure a mortgage, contact Tony Agelopoulos today! We will be able to review your credit score to determine which option is best for you. Visit to request a call or email to learn more.