Bad Credit Mortgage Options in Ontario
Key Takeaways: A low credit score does not mean you can’t get a mortgage. Banks require 640+, but B lenders work with scores of 500-639 and private lenders approve based on equity regardless of credit. Rates are higher (B lenders: 1-3% above prime rates, private: 8-12%), but a bad credit mortgage gets you into a home or lets you refinance now while you rebuild your credit over 1-2 years.
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If your credit score has taken a hit, whether from missed payments, consumer proposals, collections, or even a past bankruptcy, finding a mortgage can feel impossible. Banks turn you away, and the rejection stings. But the reality is that thousands of Ontarians with imperfect credit get approved for mortgages every year through alternative lending channels that banks won’t tell you about.
At Canadian Mortgage Services, we’ve been helping borrowers with credit challenges since 1988. We work with over 40 lenders across the full spectrum, from prime banks to B lenders to private lenders, and we know exactly which lenders to approach for your specific situation.
Credit Score Tiers and What They Mean
| Score Range | Rating | Lending Options |
|---|---|---|
| 720+ | Excellent | All prime lenders, best rates available |
| 680-719 | Good | Most prime lenders, competitive rates |
| 640-679 | Fair | Some prime lenders, mostly B lenders |
| 500-639 | Below Average | B lenders and select private lenders |
| Below 500 | Poor | Private lenders (equity-based approval) |
Don’t know your score? You can pull a free report from Equifax or TransUnion online. If you’re not sure where you stand, call us and we can review your full credit picture in a few minutes.
Your Lending Options by Credit Range
The Canadian lending market has three main tiers. Your credit score largely determines which tier you’ll fall into, though other factors like income stability and equity also play a role.
A Lenders (Prime): These are the big banks and major credit unions. They offer the lowest rates but have the strictest guidelines. You typically need a minimum score of 640, provable income, and clean credit history.
B Lenders (Alternative): Companies like Home Trust, Equitable Bank, and CMLS Financial. They work with borrowers who don’t quite fit the bank’s checklist but still have reasonable income and some credit challenges. Think of them as the middle ground.
Private Lenders: Individual investors or Mortgage Investment Corporations (MICs) who lend based primarily on the equity in your property. Credit score matters very little. These are short-term solutions (usually 1-year terms) designed to get you through a rough patch while you rebuild. Learn more on our privately funded mortgages page.
How B Lenders Work
B lenders use a common-sense approach to lending. Instead of a rigid checklist, they look at the full picture. A B lender might approve you if your credit took a hit because of a divorce, a medical issue, or a temporary job loss, especially if you’ve been working to recover.
B lender rates typically run 1% to 3% above prime lender rates. On a $400,000 mortgage, that might mean paying $150 to $450 more per month compared to a bank rate. There’s usually a 1% lender fee as well. The advantage is that you get into the home (or keep it) now, and after 1-2 years of rebuilding your credit, you can refinance with a prime lender at a better rate.
How Private Lenders Work
Private lenders care about one thing above all: the equity in the property. If you have 20-35% equity in your home, most private lenders will approve the mortgage regardless of your credit score. They may not even pull a credit report.
Private mortgage rates in Ontario typically range from 8% to 12%, with a lender fee of 2-4% and shorter terms (usually 12 months, renewable). It sounds expensive, and it is compared to a bank mortgage. But consider the alternative: if your home is facing power of sale, a private mortgage at 10% is far cheaper than losing your home.
Rates and Costs to Expect
| Lender Type | Typical Rates | Lender Fees | Terms |
|---|---|---|---|
| A Lender (Prime) | 4-6% | None | 1-10 years |
| B Lender | 5.5-8% | 0.5-1.5% | 1-3 years |
| Private Lender | 8-12% | 2-4% | 6-12 months |
What You Need to Qualify
The approval process for a bad credit mortgage is actually quite similar to a regular mortgage application. You’ll still need to provide proof of income (job letter, pay stubs, T4s or tax returns), identification, and property details. The difference is that the guidelines are more tolerant.
For B lenders, you’ll typically need a credit score of at least 500, provable income, and a minimum 20% equity or down payment. For private lenders, the minimum is usually 20-35% equity, with much less emphasis on income and credit.
Rebuilding Your Credit While in a Bad Credit Mortgage
A bad credit mortgage should be treated as a stepping stone, not a permanent solution. The goal is to use the 1-2 year term to improve your credit score and financial position so you can qualify with a prime lender at renewal.
During this time, make all your mortgage payments on time without exception. Pay down credit card balances and keep utilization below 30%. Don’t apply for new credit unnecessarily. Set up automatic payments on all accounts. If you’ve had a consumer proposal, make sure the discharge is reflected on your bureau.
Our team offers financial counselling to help you build a concrete plan for improving your financial profile so that when your term comes up, you’re in the strongest possible position to move to better rates.
Ready to explore your options? Contact us or call 905-455-5005. We’ve seen every credit situation imaginable and we can tell you in 15 minutes what your options look like.
FAQ’s - Bad Credit Mortgage
Q: What credit score do I need to get a mortgage in Ontario?
A: Major banks typically require 640 or higher. B lenders work with scores as low as 500. Private lenders approve based on property equity and often don’t have a minimum credit score requirement at all.
Q: Can I get a mortgage after bankruptcy?
A: Yes. Once you’ve been discharged from bankruptcy for at least 2 years and have started rebuilding credit, B lenders will consider your application. If you have sufficient equity in a property, private lenders may work with you even sooner.
Q: Can I get a mortgage during or after a consumer proposal?
A: During an active consumer proposal, your options are limited to private lenders. Once the proposal is paid in full and discharged, B lenders become available. Prime lenders typically want to see 2 years post-discharge with rebuilt credit.
Q: Will my interest rate go down over time?
A: That’s the plan. A bad credit mortgage is a short-term strategy. If you make all payments on time and actively rebuild your credit during the 1-2 year term, you should be able to refinance into a lower-rate product at renewal. We help our clients plan for this transition from day one.
Q: How much down payment do I need with bad credit?
A: For a purchase with B lender financing, you’ll typically need at least 20% down. For private lending, 25-35% down is more common. The more equity or down payment you bring, the better your rate and terms will be.