How to Buy a Home with a Bad Credit Score?

You cannot overlook your credit score when you think of home loans. This score happens to be a crucial tool that’ll help you get access to different kinds of financial leverages.

Canadians can enjoy personal loans, car loans, and of course, home loans easily with a good credit score. On the other hand, a low credit score might hold you from getting the best interest rates on the market. Besides, not all creditors might be ready to provide you with a home loan if your credit score does not look lustrous.

Once you reach out to the professionals at Mortgage Maestro, the experts will guide you on all the viable options. This post will go over how you can qualify for a home loan even if you have a bad credit score.

What does a bad credit score mean?

As a borrower, your reliability in terms of payment commitment largely depends on your credit score. A low credit score implies that you have failed to make timely payments or already have a lot of debt.

Banks or creditors would not consider you a trustworthy customer in such situations. Therefore, you may have to shell out a higher interest rate when you seek a home loan.

Canada credit scores range from 300 to 900, the former being the worst and the latter–the highest–implying impeccable reliability. Any score above 680 is considered to be good. A credit score between 600 and 679 is considered fair. However, make sure your score isn’t below 600!

Needless to say, if you have a lousy score, potential creditors would perceive risk in lending you money. Most of them are likely to refuse you a home loan. However, you will still come across some lenders who’d be willing to give you loans–but at a higher rate of interest.

In case your credit score is below 550, you may reach out to a private lender and obtain a bad credit mortgage.

How can you get a home mortgage with a low credit score?

Here are six ways for you to get a home mortgage with a low credit score:

Talk to a mortgage broker

One of the best reasons to reach out to a mortgage broker is their ability to negotiate on behalf of their clients. Therefore, if your credit score is low, you need to talk to one of these licensed professionals.

They have good networks and connections with lenders and have been obtaining loans for their customers for several years. Mortgage brokers know lenders who’d be willing to provide you with home loans even if you have a bad credit score.

Of course, the eligibility criteria would be different for each lender, but the experts will help you to obtain the loan despite all hassles.

Co-Signing the mortgage

Every lender expects their clients to make timely payments without defaulting. While a shabby credit score minimizes your chances of getting the home loan approval, you may apply with a cosigner.

This second person should have an excellent credit score so that the creditor has added assurance. You’re free to choose any of your family members or friends as your cosigner.

However, your cosigner should understand the risks associated with the deal. Once both of you sign for the mortgage, you would have equal liability to pay the debt.

Make a heavy down payment

Canada has certain private lenders who would be ready to provide you with high-risk or bad credit mortgages if you make a heavy down payment.

Generally, you need to shell out at least 20 percent of the property value or more as the down payment in these cases. Again, this significantly minimizes risk on the lender’s end.

Try to save as much as you can from making the maximum down payment amount. This will also help you obtain the loan at a lower interest rate, given that most lenders will already be charging higher rates due to your poor credit score.

Show stability in income

A stable source of income is what every mortgage lender demands of you. In addition, they want assurance from the borrowers regarding their repayment capabilities.

Therefore, it’s a must that you have a stable income, preferably through employment. This demonstrates that you won’t run into a financial crisis after taking the loan. In addition, a stable employment record will enhance your chances of getting approval for a home loan.

If a potential lender finds that a borrower’s income is confirmable through the notices of the Revenue Agency of Canada, they are more likely to sanction the loan for you.

However, creditors usually calculate the average yearly income for commission-based workers or self-employed professionals. They then proceed with the decision-making process.

Reach out to private and subprime lenders

If you believe that it would take you a little longer to improve your credit score, you can reach out to a private or subprime lender. This would be the right choice for you in case your credit score dips below 600.

However, a credit lending institution or union would be the best option for slightly higher scores.

Remember that the down payment for these lenders would be at least 20 percent. Moreover, you cannot enjoy rates as low as 5 or 6 percent, and your monthly mortgage payment would be higher.

Go for seller financing

Seller financing is yet another viable option for homebuyers with a bad credit score. In this case, the property’s seller becomes the lender, and you own the property.

Here, you need to agree with the seller to repay the loan, after which the seller will hand over the property deeds to you. Under such an arrangement, you need to make monthly payments to the seller.

This would give you the necessary breathing space to improve your credit score. Then, you will be able to go for a traditional mortgage with time. And when you achieve this, you can hand over the remaining amount to the seller.


All the options mentioned above are viable for Canadians with low credit scores but go for professional guidance as it’ll help you choose the right one.

Consult with a reputed mortgage specialist regarding the lowest interest rates you need to pay. Proper guidance will help you make the correct decision.

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