Qualifying for a Mortgage with a Low Credit Score in Canada – Explained

Purchasing a home is one of the most significant financial steps in a person’s life. However, for many Canadians, a low credit score can feel like an insurmountable barrier.

The good news? It’s not.

While a lower credit score may limit your mortgage options, it does not automatically disqualify you. With a solid strategy, the right lender, and a realistic budget, it is entirely possible to qualify for a mortgage in Canada even with less-than-perfect credit.

In this guide, we’ll walk you through how mortgage qualification works, what lenders look for, the difference between A and B lenders, and how to boost your chances even with a lower score.

What is Considered a Low Credit Score in Canada?

Credit scores in Canada range from 300 to 900. Generally:

• 760+ is excellent

• 700–759 is good

• 660–699 is fair

• 600–659 is poor to borderline

• Below 600 is considered bad credit

A score below 680 usually places you outside the preferred range of Canada’s major banks (known as A-lenders). But that doesn’t mean you’re out of options.

Minimum Credit Score Requirements for a Mortgage in Canada

The most important benchmark is 600, the minimum credit score typically required for a CMHC-insured mortgage (one where you put less than 20% down).

• CMHC, Sagen, and Canada Guaranty are Canada’s three main mortgage default insurers. All generally require a minimum credit score of 600.

• If your score is below 600, you will need a larger down payment, alternative lender, or co-signer to qualify.

Some B-lenders may still work with scores in the 580–599 range, but at significantly higher interest rates and with stricter terms.

What Lenders Actually Look For

Your credit score is important, but it’s only one part of the mortgage application. Canadian lenders assess borrowers based on:

1. Credit Score & History

• A low score might indicate missed or late payments, high utilization, or defaulted accounts.

• That said, a score of 620–680 isn’t necessarily a red flag—especially if you have recent improvements, such as no missed payments in the last 12 months.

2. Income & Employment

• Stable employment and provable income can compensate for a lower credit score.

• Lenders want to see steady income for at least 2 years from a reliable source (full-time job, self-employment with financials, etc.).

3. Debt Service Ratios (GDS/TDS)

• GDS (Gross Debt Service): percentage of income that goes toward housing costs (mortgage + property tax + heating).

• TDS (Total Debt Service): GDS + other debts (like car loans or credit cards).

• Most lenders want your TDS ratio to stay below 44%.

4. Down Payment

• The larger your down payment, the better.

• If your credit score is low, some lenders may require 10–20% down, even if CMHC doesn’t.

Types of Mortgage Lenders in Canada

There are three main categories of mortgage lenders. The one you go with will largely depend on your credit situation.

1. A-Lenders (Banks and Big Credit Unions)

• Example: RBC, TD, Scotiabank

• Require 680+ credit scores

• Offer best interest rates

• If your score is below 680, your application may be denied unless you have a strong co-applicant.

2. B-Lenders (Alternative Lenders)

• Example: Home Trust, Equitable Bank

• Work with borrowers in the 600–679 credit score range.

• Charge higher interest rates (1–2% more than A-lenders).

• May require larger down payments and lender/broker fees.

3. Private Lenders

• No strict credit requirements.

• Based almost entirely on the equity or value of the property and your down payment.

• Very high interest rates (8–15%) and short-term loans (often 1–2 years).

• Best suited as a last resort or temporary solution.

How to Improve Your Chances of Mortgage Approval with a Low Credit Score

Even if you fall in the lower credit tiers, there are practical steps you can take to improve your mortgage prospects:

✅ 1. Increase Your Down Payment

• If you can save 10–20% instead of just 5%, your chances with B-lenders increase.

• A larger down payment lowers your monthly obligations and improves affordability ratios.

✅ 2. Reduce Your Debt

• Paying off a car loan, line of credit, or high credit card balances can significantly improve your TDS ratio, and thus your application.

✅ 3. Get a Co-Signer

• If you have a family member with strong credit and income, their name on the mortgage may push the application over the line.

✅ 4. Work with a Mortgage Broker

• Brokers can access multiple lenders and know which ones are flexible with credit.

• They may also suggest a “credit repair” plan or a pre-approval strategy.

✅ 5. Show Rental History and Savings

• Consistently paying rent on time is a positive sign, especially if you can show it over 1–2 years.

• A good-sized emergency fund (3–6 months of expenses) also builds confidence with lenders.

How Much Can You Afford With a Low Credit Score?

With a $60,000 income and a modest debt load (such as a $10,000 car loan), your maximum mortgage amount is likely in the $300,000–$340,000 range.

This is much lower than typical home prices in cities like Toronto or Vancouver, but it may be sufficient for:

• Condos in smaller cities

• Rural or Northern communities

• Co-ownership properties or fixer-uppers

A mortgage affordability calculator can give you a clearer estimate, but B-lenders often use more conservative metrics.

Should You Wait to Improve Your Credit First?

It depends on how close you are to a higher tier:

• If you're at 645–660, you’re just 20–30 points away from qualifying with many A-lenders.

• In that case, waiting 6–12 months and actively rebuilding credit may save you tens of thousands in interest.

Quick wins to improve credit:

• Lower your credit utilization below 30%

• Make all payments on time

• Avoid new credit applications

• Keep older accounts open

Final Thoughts

Yes, you can qualify for a mortgage in Canada with a low credit score—but it’s a more complex path. The key is being honest with your finances, realistic about your affordability, and strategic about your next steps.

While your score may shut the door with big banks, it opens another with B-lenders or brokers who specialize in cases just like yours. As long as you can show stable income, a reasonable down payment, and low debt ratios, there is still a way forward.

And remember: your credit score is not permanent. Every on-time payment and every dollar of debt paid down is another step toward a better rate and a better home.