Bad Credit Mortgage Loans: Best Loan Options for You

Bad Credit Mortgage Loans: Best Loan Options for You

Having bad credit doesn’t mean homeownership, or affordable borrowing options are out of reach. There are many great options out there to help you purchase the home you have always wanted. 

A trusted private mortgage lender like the team at Mortgage Broker Store can review your credit history and find affordable mortgage options that have interest rates and repayment schedules that fit your budget. So what are your mortgage options? 

Types Of Loan Options

Traditional Home-Purchase Mortgage – With a high enough credit score, you may be able to qualify for a traditional mortgage for the purpose of buying a property. With a 5% down-payment and a 680 credit score with Equifax, most banks can approve you for a mortgage. If your credit score is less than 680 the banks will insist on higher down payment amounts. It is recommended to talk to either your financial or bank advisor to review your current financial situation such as assets and investments to see if anything can be applied towards things like a down payment. If your credit score is less than 600, you may have to look at other options. 

Home Equity Loan – A home equity loan uses your home as collateral and is registered as a mortgage on the property. As a secured loan, it allows you to borrow against the value of your home. This is not only a great option for people with bad credit, but for seniors or people can’t meet bank approval criteria. This type of loan also offers more flexibility, allowing you to cancel the mortgage early with up to three months interest penalty fee. 

Vendor Take-Back Mortgage – This type of mortgage allows buyers to purchase a home with the help of the sellers. Ideal during times of high-interest rates, a VTB mortgage would see the seller offering a mortgage rate lower than the market. Current low-interest rates mean very few VTB mortgages are being offered to buyers unless the home is in a bad neighbourhood or there is a slow housing market. 

Bad Credit Lender Mortgages – An ideal solution for people with bad credit. Instead of looking at credit, private lenders will look at the existing debts on a property when deciding to provide a mortgage. To judge the risk of the property, the lender will calculate the Loan to Value (LTV) of the property. Remember, the lower your LTV, the more likely you are to get a great deal on a bad credit lenders mortgage. 

What are the best loans for people who have bad credit?

Your financial history and credit score will determine what loan is best for your situation. 

  • Very poor credit: 300 to 579
  • Fair credit: 580 to 669
  • Good credit: 680 to 739
  • Very good credit: 740 to 799
  • Excellent credit: 800 to 850

Even with a fair credit score, you can get a loan that works with your budget. There are several key factors to take into consideration before applying for a loan.

Financial and Credit Score – Does your monthly debt exceed your income? Do you have a lot of financial liabilities? A mortgage lender will look at these important figures to determine whether or not you can carry a mortgage. 

Down payment – Most A-tier lenders will require a down payment average anywhere from 5% to 20% of the home value. 

Purchase price of your home

Minimum amount of down payment

Purchase price of your home

Minimum amount of down payment

$500,000 or less

  • 5% of the purchase price

$500,000 to $999,999

  • 5% of the first $500,000 of the purchase price
  • 10% for the portion of the purchase price above $500,000

$1 million or more

  • 20% of the purchase price

Repayment Schedule – Can you afford a 20 or 30-year mortgage? Look at your future and determine if you have any large expenses coming up soon such as changing jobs, buying a car, paying for your children’s college, or supporting a retired family member. These types of important financial obligations may affect your ability to make mortgage payments on time, so be sure to discuss these with your lender. 


What To Expect When You Apply For A Mortgage Loan

When applying for a bad credit loan you can expect your lender to review your complete financial history. 

You will need to provide:

  • Proof of income
  • A breakdown of all assets, investments, and liabilities
  • Proof that you have 30.0% equity in your home

Depending on your marital status you may also require a co-signer on your mortgage or mortgage insurance to assure the lender that you will be able to cover repayment. 

How to Buy a Home Even With Poor or Bad Credit

If you are thinking about buying a home, start repairing your bad credit now! 

Pay down your debt to help improve your credit score. Look into incentive programs that help homeowners get onto the property ladder like:

  • The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000, tax-free, from your Registered Retirement Savings Plan (RRSP). 
  • First-Time Home Buyer Incentive, shared equity mortgage with the Government of Canada for first-time homebuyers which offer no financing interest and reduces your monthly mortgage payment.
  • All houses that have less than 20% down payment must have insurance on the mortgage. The insurance has strict requirements, including a minimum 680 credit score. By putting more than 20% down payment, you can avoid getting mortgage insurance.


Your mortgage lender is here to help and will work with you to find the best mortgage solution. Buying a home isn’t just a financial investment, it’s also an opportunity to improve your credit score. Make the payments on time and you will quickly see an improvement in your score, making it easier to get a mortgage the next time you want to buy a home. 

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