Home Loans With Bad Credit and No Money Down

What is the Ideal Credit Score for a Home Loan in Canada?

Financial experts suggest that 680 is the ideal credit score to get a mortgage with a decent interest rate in Canada. Of course, anything above this threshold increases your chances of getting the best possible deal on your loan. 

There are also a lot of other factors that come into play if you want to get the best mortgage rates. Things like the size of your down payment and the duration of your loan can all affect the amount you pay in interest.

Can You Get a Home Loan With Bad Credit in Canada?

As mentioned earlier, traditional financial institutions are very picky when it comes to lending money. They want to make sure that borrowers will be able to repay their loans and that they won’t default on their payments. This means that if you have a less than stellar credit score, your home loan application will likely be denied.

However, there are many other sources of funding available for those with poor credit scores. Alternative lending companies and private lenders are willing to work with borrowers who don’t meet the traditional standards. But, there’s a catch. Home loans for bad credit usually come with higher interest rates and fees. This means that you’ll have to shell out a whole lot more money over the life of your mortgage.

Can You Get a Home Loan With No Money Down?

Unfortunately, down payments are a prerequisite for getting a mortgage in Canada. In fact, getting a mortgage with no down payment in Canada is considered illegal. In 2008, the Canadian Parliament passed a law that prohibits lenders from offering mortgages without a down payment.

The amount of down payment that you need to pay in order to get a home loan in Canada ranges between 5% to 20% of the value of the property. The higher your down payment is, the better your chances of getting a low-interest rate on your mortgage.

Is it Advisable to Take Out a Home Loan if You Have Bad Credit?

While it is possible for you to get a mortgage with bad credit, it is not advisable to do so. The interest rates that come with these types of loans are typically twice, thrice, or even four times what you would pay if you have a good credit score. 

If you intend on buying a home, it’s best to put a lot of time and effort into improving your credit score instead of using a bad credit loan. It may take months or years before you can get back on track, but doing so will give you a better chance at getting a home loan with a much lower interest rate. Plus, you’ll be able to build up your savings and start paying off your debts sooner.

Mortgage Interest Rates in Canada: Conventional Mortgage vs. Bad Credit Home Loans

To give you a better idea of what you can expect to pay in interest, here is a comparison of the two.

Conventional Home Loans

Conventional home loans from some of the major banks in Canada like TD Bank, Bank of Montreal, CIBC, and Scotiabank have a 5-year variable interest rate ranging from 3.20% to 3.40%.

Bad Credit Home Loans

Bad credit home loans offered by private lenders and online lending companies typically come with interest rates between 10% and 15%, making them a far more expensive option.

The Bottom Line

There are many different factors that can affect your mortgage interest rate. One of the most important things to keep in mind is that you need to be prepared to put a significant amount of money down when you apply for a home loan. The bigger your down payment is, the lower your interest rate will be. However, if you have a poor credit score, it’s highly recommended that you work on improving it before applying for a home loan. Your credit score is the major determining factor in how much you will have to pay in interest, so it is imperative that you improve it as soon as possible.