Credit scores in Canada run from 300 to 900. Most prime lenders want to see 680 or better, and an insured mortgage generally needs at least one borrower at 600. Below that, the file moves to lenders who price for the risk instead of declining it. There are hundreds of them in Ontario, and almost none of them take applications from the public — they work through brokers.

The honest version is this: with bruised credit you will usually pay more and put down more, and the work is making that period short and planned rather than permanent.

What lenders look at when the score is low

Once a score is below the prime cut-off, the score stops being the whole decision and four other things start carrying the file.

• Equity, or the down payment. This is the big one. Alternative lenders generally want 20% down on a purchase, and refinances are capped at 80% of the home's value by regulation — not the 85% figure that circulates. A private lender may go further on the right property, and charges accordingly.
• Income that can be verified. Not the amount so much as the proof: Notices of Assessment, T4s, a job letter, business bank statements. A lender taking a credit risk will not also take an income risk.
• The property itself. With weaker credit the house is the security, so it is appraised strictly. A standard home in a town with real buyers is financeable. A rural property on a private road, a former grow operation, a tiny condo in a troubled building, or anything that would be slow to sell, is harder — sometimes harder than the credit is.
• What actually happened. A clean record with one bad year, explained and documented, reads completely differently from a long pattern of missed payments. Lenders will accept a story; they will not accept a surprise found in the file later.

Where the mortgage actually gets placed

Three tiers, and most files sit in the second for a while.

• Prime lenders, scores roughly 600 to 680. Possible, with strong income, a clean recent year and a sensible loan-to-value. Pricing is close to ordinary. This is worth testing before anyone assumes it is out of reach, and it is routinely skipped.
• Alternative, or "B", lenders. Trust companies and credit unions that read the whole file. Expect roughly 20% down, a lender fee of about 1% of the mortgage, a broker fee where one applies, and a rate above prime pricing. Terms are usually one or two years, deliberately.
• Private lenders. Individuals and mortgage investment corporations lending against the property, often interest-only, usually for a year. Fees are higher again. This is a tool for a defined job — clearing arrears, closing on time, buying twelve months to repair credit — and not a place to settle. See private and second mortgages.

The stress test applies in the first two tiers: you qualify at the greater of your contract rate plus 2% or 5.25%, which is why the amount a B lender will advance is often lower than the payment you are already comfortably making.

The situations we see most

Collections and a balance you forgot about

An unpaid cell phone bill or a small collection will hold up an approval far out of proportion to its size, and it has to be paid and shown as settled, not simply argued about. Unpaid taxes matter more again, because they can become a lien ahead of the lender.

A consumer proposal

While a proposal is active, prime lending is effectively closed and alternative or private lending is the route — frequently a refinance that pays the proposal out in full, which both ends it and starts the credit rebuild sooner. Once it is paid and discharged, prime lenders want to see the discharge paperwork and re-established credit afterwards.

A discharged bankruptcy

The common expectation at a prime lender is a discharge at least two years old with two new credit accounts reported and paid perfectly since. Before that, alternative lenders will often look at it, with the discharge certificate and the statement of affairs on file.

Missed mortgage payments or arrears

Treat this as urgent rather than embarrassing. Arrears have a legal timetable attached and the options narrow sharply once enforcement starts. See mortgage arrears and power of sale.

Cards at their limit

Often the easiest to fix. Utilization is one of the heaviest components of a score, and bringing balances under about 30% of each limit can move a score materially within a couple of statement cycles — sometimes enough to change which tier the file belongs in. If the balances cannot be cleared, debt consolidation may be the answer anyway.

What it costs, plainly

On a $500,000 mortgage, the gap between prime pricing and alternative pricing is commonly in the range of a few hundred dollars a month, plus a lender fee of roughly $5,000 added at the start. That is the real number, and it is the reason the exit plan matters more than the rate you are quoted today.

Which is also why a two-year stay is a reasonable trade and an indefinite one is not. If nobody has written down what has to change before the renewal, the arrangement is not a plan.

The twelve months before you move back to prime

1. Every payment on time, every month. Payment history is the single largest factor in a score, and one late payment during the repair year sets the clock back.
2. Balances under 30% of each card's limit, and under 10% if you can manage it.
3. Keep the oldest card open. Closing it shortens your credit history and raises your utilization at the same time.
4. Two active accounts reporting. If nothing is reporting, a secured card is the ordinary way to start.
5. No new applications in the last few months before the renewal.
6. Collections paid and reported as settled, with the letter kept.

What we do with your file

1. Pull the bureau and read it with you, including what is wrong on it — reporting errors are common and are worth disputing before anyone applies.
2. Test whether a prime lender will still take it, rather than assuming the score answers that.
3. Place the file where its weakest part is the one that lender cares least about.
4. Write down the exit: what the score needs to be, what has to be paid, and the date to start the next application.

Common questions

What credit score do I need to buy a home in Canada?

Prime lenders are generally looking for 680 and above, and an insured mortgage needs at least one borrower at 600. Below 600 the file goes to alternative or private lenders, where the score matters less than the down payment, the income and the property.

Will applying hurt my score?

Speaking to us does not. One credit pull when an application is actually submitted has a small, short-lived effect. What does damage a score is several lenders pulling it separately over weeks — which is exactly what happens when somebody shops bank to bank on their own.

How much down payment do I need with bad credit?

Plan on 20% at an alternative lender. Insured financing with as little as 5% down is available where the credit still clears the insurer's requirements, so the first question is always which side of that line the file falls on.

Can I refinance to pay off my debts if my credit is already damaged?

Often, yes — this is one of the most common files we place. Refinances are limited to 80% of the home's value, so the equity available decides it, not the score alone. Where the numbers work, the payment usually falls, because consumer debt at 20% or more is being replaced by mortgage debt.

How long until I can get a normal mortgage again?

Twelve to twenty-four months of clean history is the usual answer, and a one or two year term at an alternative lender is built around exactly that window.

Do you charge a fee?

On a prime approval the lender pays us and you pay nothing. On alternative and private files a broker fee may apply, and it is disclosed in writing before you commit to anything.

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This page is general information, not legal, credit or financial advice, and lender requirements change. Figures quoted are typical rather than guaranteed and your own approval depends on the full file. Speak with a licensed mortgage professional before making a decision. Pegasus Mortgage Lending Center Inc., Brokerage, FSRA Licence #11479.