What are the Chances of Getting a Home Loan with Bad Credit?

The chances of buying a home are high because of a bad credit mortgage. However, it is not a secret that a good credit score is essential in getting a reliable financing partner, in most cases, a bank.

Since housing costs have continued to increase yearly, we need bank financing to help us own a home.

What is Bad Credit?

It is when your credit score falls within the bracket of 559 and below. It means that creditors, lenders, and even banks will view you as a less responsible borrower than the others.

Though this will affect your chances when you apply for a mortgage, primarily to banks, it is still possible to buy a house with bad credit through credit repair loans or bad credit mortgages.

What are Credit Repair Loans?

Credit repair loans are a type of unusual loan. It works by not getting the money you need until you repay the loan in full.

Since you must pay the loan amount first, it is crucial to do it without delay. The lender will regularly submit your credit report to the credit bureaus (Equifax and TransUnion). Thus, helping you build and rebuild your score.

However, a reasonable credit requirement is not needed for beginners to get approved for credit repair loans.

What is a Bad Credit Mortgage?

Bad Credit Mortgage is the total amount of money creditors lend to borrowers whose credit score is below 559. It may be referred to as bad or poor if you fall within this bracket.

Credit Score Ranges:

  • 760+ (Excellent)
  • 759 – 725 (Very Good)
  • 660 – 724 (Good)
  • 659 – 560 (Fair)
  • 559 and below (Bad)

Often, bad credit mortgages incur higher interest fees compared to traditional mortgages. If managed properly, they can be valuable in improving your credit score.

Different Ways to Buy a House with Bad Credit

Even with bad credit, you can still apply for a mortgage. These lenders will help you provide the funding you need through bad credit mortgages.

  • B Lenders or Subprime Mortgage Lenders

The idea of buying a house with bad credit can be overwhelming. But daily, private lenders, also called “B Lenders” or “Subprime Lenders,” help borrowers with bad credit scores.

  • Pros of B Lenders or Subprime Mortgage Lenders
    • In this case, these lenders couldn’t care less about what your credit standing is
    • No minimum score requirement to purchase a home
    • Offers a solution with terms that would usually take up to three years
  • Cons of B Lenders or Subprime Mortgage Lenders
    • You would be paying extra fees aside from the interest rate
    • Default on payments may result in your home being sold by the lender
    • Another 1% for other additional fees, which the broker may charge.
    • If you found a lender through a mortgage broker, consider:
      1. finder’s fee
      2. loan processing cost (which amounts to 1% of the total loan)
  • Mortgage Brokers

Another substitute for private lenders is mortgage brokers. These brokers will find a suitable lender for your bad credit.

  • Pros of Mortgage Brokers
    • Offers more convenience since it is sometimes difficult to get private lenders without the help of mortgage brokers.
  • Cons of Mortgage Brokers
    • It might cost you more money than banks and private mortgage lenders.

Be sure to ask the mortgage broker first about the possible charges you will get if you decide to go for them as your alternative.

Who Will Finance A Home With Bad Credit Score?

Getting a home loan is a significant investment and can really be overwhelming. Here are some of the home loan options available and their corresponding score requirements:

  • Conventional Loans

The conventional loan is the most popular and standard mortgage for home buying and refinancing. A conventional loan is the most common mortgage loan and is not backed by a government agency.

No special eligibility requirements exist for this loan, and almost all lenders offer them.


  • You generally need a score of at least 620, or some lenders may require
  • A score of 660 or better
  • A debt-to-income ratio lower than 43% (or can be higher, this varies depending
    qualifying factors)
  • A down payment of as little as 3%
  • FHA Loan

Federal Housing Administration (FHA) loans are loans backed up by the Federal Housing Administration. This loan is created to help low- and moderate-income borrowers get a chance to become homeowners despite having bad credit.


  • Allow lenders to receive a credit score as low as 500 with a 10% down payment or 580 with a 3.5% down payment.
  • Mortgage Insurance Premium (MIP) is required.
  • A debt-to-income ratio of 43% or less
  • The borrower must have a stable and verifiable income for 2+ years and present proof of employment.
  • VA Loan

Veterans Affairs (VA) loans are loans for veterans, service members, and surviving spouses with low or bad credit scores who are ready to settle down.

VA loans have lower interest rates, no minimum score requirements, and no private mortgage insurance (PMI) requirements; Plus, there’s no need for a down payment. Although you won’t have to pay for PMI, VA loans come with funding fees.


  • Must have a Certificate of Eligibility from the Veterans Affairs (VA)
  • Score requirements depend upon the lender.

List of Best Mortgage Lenders for Fair Credit

A bad credit score significantly affects your chances of getting approved when you apply for a mortgage through Lenders or banks. They require a good or high score to qualify for one.

But with B Lenders, the power to buy a house with bad credit becomes possible. Here are the seven best mortgage lenders for fair credit in Canada.

  • MCAP Financial Corporation

    • The first and one of the largest mortgage finance companies in Canada
    • Offers flexible mortgage rates with terms of up to one to 10 years and five to 30 years for amortization
    • Has second mortgages for loan-to-value up to 95% after buying a secondary residence and up to 80% LTV for refinancing.
  • First National Financial

    • Canada’s largest mortgage finance company
    • Known for its simplified steps when renewing- review, sign and submit electronically
    • Offers mortgage solutions especially to individuals with bad credit through the Excalibur program
    • The Excalibur program is only available in Ontario.
  • Reality Finance Advisors (FA)

    • Acquired Street Capital in 2019
    • Apart from mortgages, it also guarantees
    • investment certificates (GICs)
    • Eligible for insurance deposit for up to $100,000
  • Merix Financial or Paradigm Quest

    • Helps individuals who have unstable income, bad credit scores, or are even self-employed through its uninsured non-prime NPX mortgage
    • Its NPX mortgage allows a score of 500 and below but with terms of up to three years only.
    • Offers flexible mortgages rate, interest-only payment mortgages, and bridge financing between the sale and purchase of the home.
    • Its MAX mortgage is available to individuals who are not qualified under stress-testing scenarios.
    • Offers a 1.84% for its 5-year fixed mortgage rate as of October 2020
  • Radius Financial

    • Requires a minimum score of at least 620 for their standard mortgage
    • Must have at least 2 years of credit history
    • Offers a 1.89% for its 5-year fixed mortgage rate as of October 2020
    • Offers a 5.09% rate for uninsured conventional purchases and refinances and 5.04% for non-permanent residents and new-immigrants
  • Canadian Mortgage Loan Services Limited (CMLSL)

    • Canada’s one of the largest commercial mortgage lenders, primarily residential mortgages
    • Offers a 2.19% for its 5-year fixed mortgage rate as of October 2020
  • Home Trust

    • Offers a 4.79% for its 5-year fixed mortgage rate as of October 2020

How Long Does It Take For A Mortgage Approval In Canada?

In Canada, the approval process when you apply for a mortgage may take a while and may depend on how prepared you are for it.

  • For the pre-approval of mortgage loan

    • Takes at least 2 to 3 business days.
    • Gives you an idea of the maximum mortgage amount, other mortgage charges,
    • And the interest fees will depend on the lender.
    • Helps you choose the type of property and makes the mortgage much more manageable.
  • For the approval of mortgage loan

    • Approval usually takes at least 11-25 days or two weeks more.
    • Incomplete paperwork, your entire financial situation, such as unstable income or debt, and your credit score may affect the length of the approval process.

Above all, the best way to minimize the mortgage loan approval process is to get pre-approved first.

Tips to Increase the Chances of Mortgage Approval

If you think chances are dim if you fail to meet the bank’s minimum mortgage requirement because of bad credit, then you are wrong. It is still possible to apply for a mortgage even with a bad one.

Take a look at the following steps to increase your chances of mortgage approval.

  • Look for a Stable Job

Stable employment history is trivial for lenders in deciding whether or not you are a risky investment. With that, it is essential to find a permanent source of income.

  • Look for a Private or Subprime Lenders

These alternative lenders allow you to have your ultimate dream home if you cannot wait until you rebuild your credit. They provide bad credit mortgages to borrowers who need immediate assistance.

Though they charge higher fees, they’re more likely to help you get approved than mortgage loans.

  • Save for a Higher Down Payment

In Canada, 5% is the minimum amount of down payment in owning a home. The lender would require a larger down payment if you have bad credit.

Considering a higher down payment indicates that you are financially capable of owning a home which will decrease your monthly mortgage payments.

  • Improve Your Credit

Make time and effort to rebuild your poor credit history. In most cases, lenders check your credit standing to see if you are worthy of acquiring a good mortgage deal.

If you want to give yourself the best odds of obtaining a mortgage, don’t be in a hurry and take time to boost your credit report.

  • Paying Down an Old Debt

It is always a good idea to pay off existing debt if that debt is still recorded in your credit report. Lenders will consider whether or not to lend you your debt-to-income ratio.

Existing debts can affect how much you’re allowed to borrow. They will want to know if you have a stable income source to pay off existing debt.

  • Look for a Cosigner

Also called a guarantor, who takes responsibility when there is a default on payment from the borrower. When you apply for a mortgage, having a cosigner increases your chances of getting approval and helps you qualify for lower interest fees.

Final Thoughts

When you buy a house with bad credit, it demands higher interest fees, a larger down payment, extra charges, and the risk of repossession of property if there is a default on payment.

However, you can still apply for a mortgage through private mortgage lenders, mortgage brokers, or credit repair loans. You can also look for the best mortgage lenders for fair credit just to ensure.

Nonetheless, it is still essential to have a good credit score before applying to avoid more extended mortgage approval and higher fees.

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