What is The Minimum Credit Score For a Mortgage in Canada

Homebuyers are often left scratching their heads, wondering “What is the minimum credit score for a mortgage in Canada?”. In most cases, you need a credit score of at least 680 to qualify for a mortgage through a traditional lender. If your credit doesn’t stack up, there are alternative options available. Whether you’re a first-time homebuyer or looking to refinance, here’s how a credit score impacts your mortgage options. 

Minimum Credit Score Required by Different Types of Lenders

A credit score is a three-digit number on a scale of 300 to 900 that tells lenders how likely you are to repay the debt as agreed. The higher the score the better, because it indicates you are a reliable borrower with a history of good financial management. This results in higher chances of approval, lower rates, and better terms.  A lower score has the opposite effect.

Different lenders have different risk appetites and lending policies, which means they may have varying minimum credit score thresholds. Let’s explore the general credit score requirements set by various types of lenders:

Traditional Banks

In Canada, traditional banks are comprised of the Big Six: RBC, TD, Scotiabank, BMO, CIBC, and National Bank. These are your standard financial institutions where most people think of getting a mortgage. The Big Six typically require a minimum credit score of 680 or higher to qualify for a mortgage. This is primarily because they need to maintain certain lending standards to comply with federal banking regulations and oversight. 

Credit Unions

Credit unions are similar to banks but are regulated at the provincial level. However, the vast majority choose to impose the same mortgage lending requirements as traditional banks. In most cases, you need a minimum credit score of 680 to qualify for a mortgage through a credit union. 

However, they can be more flexible, sometimes considering scores slightly below 680. I worked for two different credit unions: one in Saskatchewan and one in Alberta. It was not uncommon for applicants with lower credit scores to be approved. It doesn’t happen all the time but it does happen. 

Private Lenders

Private lenders often cater to people to people with bad credit and have been known to accept credit scores as low as 550. These lenders are regulated differently than traditional banks and credit unions. They’re less risk-averse and more willing to consider applicants with lower credit scores. Many offer mortgages for people with bad credit. However, the trade-off typically comes with much higher interest rates and fees. 

B-Lenders

B-Lenders fill the gap between traditional banks and private lenders. Most of them are ideal for borrowers who are just below the qualification requirements of major banks. B-Lenders typically work with credit scores in the range of 600-680. While their rates and fees are higher than banks, they’re generally more affordable than private lenders. 

Minimum Credit Score for Different Types of Mortgages

There are also different types of mortgages to consider. Traditional lenders, like banks and credit unions, offer both conventional and insured mortgages. B-Lenders and private lenders offer alternative mortgage solutions, often called subprime mortgages. Let’s take a look at the minimum credit score required for each type of mortgage. 

Conventional Mortgage

A conventional mortgage is a loan that does not exceed 80% of the purchase price or market value of the property, whichever is less. This type of mortgage requires a 20% down payment and does not require mortgage default insurance. Most conventional mortgages are provided by traditional lenders and require a minimum credit score of 680. 

If you have a slightly lower credit score, it is possible to get a conventional mortgage through an alternative lender. However, interest rates are typically higher and credit requirements vary among lenders.

Insured Mortgage

An insured mortgage is a high-ratio loan that requires mortgage default insurance when obtained through a traditional lender. A high-ratio mortgage happens when the homebuyer makes a down payment that is less than 20% of the purchase price, resulting in a mortgage loan that is more than 80% of the purchase price. The minimum credit score requirement depends on the default insurance provider.

The Canadian Mortgage and Housing Corporation (CMHC) is the largest provider of mortgage default insurance in Canada. It requires at least one borrower to have a minimum credit score of 680. Two other mortgage insurance providers in Canada are Sagen and Canada Guaranty. 

Sagan requires a minimum credit score of 600-680, depending on the specific mortgage product. Canada Guaranty does not disclose its minimum credit score requirement to the public, but its First Time Homebuyer’s Workbook indicates a minimum score of 700 according to the questionnaire on page 5. 

Subprime Mortgage

Subprime mortgages are designed for borrowers who do not meet the standard qualification criteria set by traditional lenders. Most subprime mortgage lenders require a minimum credit score of 600, with some lenders accepting scores as low as 550.

Therefore, banks and credit unions do not provide this type of mortgage because they cater to prime borrowers with good credit scores. Subprime mortgages can only be obtained through alternate channels such as B-Lenders and private lenders. 

Additional Options to Consider

If you’re struggling to get approved because you don’t have the minimum credit score required for a mortgage, hope is not lost. Here are some additional options to consider: 

Co-Signers & Guarantors

Consider applying for a mortgage with a co-signer or guarantor with a credit score of at least 680, ideally higher. This person will be responsible for repaying the loan if you’re unable to. Having a co-signer or guarantor with a higher credit score can help offset the risk of lending because the lender has a backup if you default on payments.  

However, being a co-signer or guarantor is a serious responsibility that can be a risky option for both parties. If you default on the loan, your co-signer or guarantor will be responsible for repaying it and their credit score is on the line. Make sure you fully understand the consequences before going this route.

Rent-to-Own Programs

A rent-to-own program typically involves renting a property for a predetermined period, during which a portion of the monthly rent is allocated toward building equity. At the end of the agreed-upon term, the tenant has the option to purchase the property at a predetermined price. 

This arrangement provides tenants with an opportunity to improve their creditworthiness, save for a down payment, and test the property before committing to a full purchase. It also allows landlords to generate income and potentially secure a future sale.

Some notable rent-to-own providers in the Ontario region include JAAG Properties and HOS Financial, who offer a down payment of as low as 3% and do not require a high credit score.

Seller Financing

Seller Financing, also known as owner financing, is a type of real estate transaction in which the property seller extends credit to the homebuyer to purchase the property. It is a unique and underutilized way to buy a home if you do not have the minimum credit score required for a mortgage through traditional means.

That’s because this arrangement completely bypasses the need for a financial institution altogether. Instead, both the buyer and seller agree upon the terms of the loan, including the interest rate, repayment schedule, and consequences of default. This direct negotiation is a more flexible and personalized approach to financing a property purchase.

Final Thoughts

If you’re struggling to get approved because you do not have the minimum credit score required for a mortgage, chin up – you have options. Shop around and compare lenders to find one that suits your needs. You should also consider working with a mortgage broker. They have access to a diverse network of lenders beyond your reach. This will increase your chances of finding a lender who will approve you for a mortgage. And of course, I would be remiss if I didn’t tell you to work on improving your credit ASAP.