Sometimes keeping a positive credit score can be challenging. Someone gets sick, you lose your job, or don’t have strong credit, to begin with. Fixing poor credit can be time-consuming, which can offset your desire to purchase a home.

What is good to know, is that even with poor credit, there are solutions for you to still get mortgage financing. The downside is they are not as budget-friendly.

Your credit score is a determining factor in your mortgage interest rates, payments, and terms. A strong credit score will grant you more favourable mortgage terms, whereas bad credit, will still net you financing, albeit with higher interest rates, fees, and payments.

If your credit score doesn’t look the greatest, do not fret. These tips can help get you the financing you need.

1 – Improve Your Score

You can improve your credit score. It is possible to do, though it can be a time-consuming process. Always pay your bills on time. Missing a monthly payment hurts your score. Don’t keep a running balance as that interest will keep piling up, lowering your credit score, and risking delinquency. Work with your credit provider on a payment plan to manage your payments if you are having issues.

Never pay more credit than you need to. A recommended spend is 30% of your available limit. The more you max your limit indicates you may not be the wisest money manager. However, showing reporting agencies that you are a responsible spender that does not over-extend helps your credit score as well.

Do not hold too many credit products. A bunch of credit cards in your name appears as a red flag to credit reporting agencies.

Do not cancel old credit cards as that removes their report from your credit history. If you’re only in bad credit now, that whole history may boost your overall score. These simple tips can help boost your score in just a few months.

2 – Make a Larger Downpayment

Your downpayment determines how much money you need to borrow. The minimum required in Canada is 5% of the purchase price. If you have poor credit, your lender may require your downpayment to exceed typical norms, as it would be riskier to lend to you. A good tentpole to strive for is 20-25% for bad credit. This sizable downpayment gives you a boost to your financial stability, and can also lower your overall monthly payment. If your downpayment is over 20%, you will not legally need default insurance (which protects the lender). 

3 – Go to a Bad Credit Lender

The big banks are the “A Lenders”, the main providers of mortgages. To be granted approval from a bank in Canada, your credit score needs to be at least 600. Below that, most banks will not consider approving your application. In that case, you would need to find a “B Lender”, also known as a “subprime lender”. Separate financial institutions from banks, these include trust companies, and exclusively work with people with bad credit. B Lender mortgages likely come with extra fees (processing fees, finders fees, etc), higher interest rates, and higher payments.

4 – Have A Co-Signer

A Co-Signer is a third party that signs off with you on a mortgage application to guarantee the debt will be repaid. If you cannot make a payment or default, the co-signer promises to make the payment for you. Having a co-signer can unlock better rates if they have a strong credit score and income to back you up. But. being a co-signer is risky as they are taking the fall if you default. Typically the cosigner is related and often can be the parents of the consignee. In a lot of cases, the co-signer gains part-ownership of your home, which means their name ends up on your title deed. This can result in conflicts down the road when you want to sell.

Another option, however, is a joint-mortgage. This is when two or more people jointly own and live in a single home. To learn the pros and cons between this and a cosigner, it’s best to do research and speak with a licensed mortgage broker to get any questions answered.

5 – Renewing Your Mortgage

If you have a bad credit mortgage, work towards its renewal. Once the mortgage reaches term, you can renegotiate it! So use that time to better your financial situation. If you work on your financial stability, credit score, and income, using the tips above, you may be able to move from a B lender to an A lender at term. Just note, if you have mortgage default insurance, it will remain on your mortgage if you switch lenders on your next contract. And, if you stay with B lenders, you will still have to pay additional fees.

The bottom line is, you can shop around to find better deals on your mortgage at renewal. You don’t need to remain with your current lender.

While you can get a mortgage with bruised credit, it will be more expensive than an A-lender mortgage. If you do have bad credit, look into why that is and how you can improve. You can fix the reasons why you have poor credit and rebound your financial situation. Working with a trusted mortgage broker can help you improve your credit, find financing, and work on your financial stability, no matter what situation life finds you in.