What is The Minimum Credit Score For a Mortgage in Canada
By Heidi Unrau | Published on 01 Mar 2024
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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.
FAQs About Credit Scores and Mortgages in Canada
Even with a low credit score, getting a mortgage is still possible, but it may require a different approach. You might consider buying a property jointly with someone who has a better credit score or getting a guarantor who can cover your loan repayments if you’re unable to. Opting for a subprime mortgage, designed for borrowers with less stellar credit scores, is another viable solution, but bear in mind these often come with higher interest rates. Increasing the size of your down payment can also make lenders more willing to grant a mortgage despite a lower credit score.
Improving your credit score can take time, but it’s possible to raise your credit score substantially in as little as a few months with the right steps. One of the first steps you can take to improve your credit score is to make sure you’re making all of your payments on time. Late payments can have a negative impact on your credit score, so it’s important to stay current on all of your bills. Another way to improve your credit score is to pay down any outstanding debts you have. This can help lower your credit utilization ratio, which is an important factor in determining your credit score. If you have a limited credit history, you may also want to consider opening a secured credit card. This type of credit card requires you to put down a deposit, which then becomes your credit limit. By using a secured credit card responsibly, you can start building a positive credit history.
Indeed, mortgage pre-approval can cause a slight drop in your credit score in Canada. This happens because lenders perform a hard credit check during the pre-approval process, leading to a small, temporary dip in your credit score. Despite this, the impact is temporary and your score will gradually improve with regular and responsible credit usage.
When a lender conducts a hard credit check for a mortgage pre-approval, it could have a small impact on your credit score. However, in Canada, credit rating agencies understand that consumers shop around for the best mortgage rates. As such, multiple mortgage inquiries within a 14 to 45 days window are typically treated as a single inquiry for scoring purposes, minimizing the effect on your credit score. Still, it’s best to limit hard inquiries as much as possible.
Yes, making your mortgage payments on time can help increase your credit score. Consistent, on-time mortgage payments show lenders that you’re a responsible borrower, which can positively impact your credit score over time. However, it’s essential to note that late or missed payments can significantly harm your credit score. Maintaining a good payment history is one of the most significant factors credit bureaus consider when calculating your credit score.
Securing a mortgage with a 400 credit score is extremely challenging in Canada, as this is considered a very poor credit rating. Traditional lenders are highly unlikely to approve a mortgage application with such a low score. However, there are alternative paths you can consider. One of these is to have a guarantor, someone with a higher credit score who agrees to pay back the loan if you cannot. Additionally, you might consider obtaining a secured credit card. Secured credit cards are designed for individuals with poor credit or no credit history, and they require a deposit that serves as your credit limit. Using a secured card responsibly, by making small purchases and paying off the balance in full each month, can help improve your credit score over time. Nonetheless, improving your credit score significantly enough to be approved for a mortgage involves a consistent, long-term commitment to credit-building strategies such as paying bills on time, reducing outstanding debts, and maintaining a low credit utilization rate.
Securing a mortgage with a 500 credit score is quite difficult in Canada. A score this low is considered poor, and most traditional lenders will likely decline your mortgage application. However, you might find opportunities with subprime lenders willing to offer loans to low-credit-score borrowers. Another option might be seeking a co-signer or guarantor with a strong credit score to strengthen your application. Regardless, consider focusing on improving your credit score for better chances of approval and more favourable loan terms.
While it’s challenging, it is not impossible to secure a mortgage with a credit score of 550. Traditional lenders might deny your application, but you may have options with certain subprime lenders. These lenders offer loans to borrowers with low credit scores, though often at higher interest rates. Keep in mind, though, that improving your credit score will likely result in more favourable lending terms.
Yes, obtaining a conventional mortgage with a 600 credit score is a possibility in Canada, although it’s likely to be more challenging. Your options may be more limited and the terms less favorable due to this subprime credit score. Importantly, you won’t qualify for a mortgage insured by the Canada Mortgage and Housing Corporation (CMHC), which requires a minimum credit score of 680. As such, to secure a conventional mortgage, you’ll need to provide a minimum of 20% cash down payment.
In Canada, a credit score of 640 is on the edge of what’s typically required for a conventional mortgage, and while it might be possible to obtain a mortgage with this score, it could be more challenging. Some lenders may approve you for a mortgage, but you may face higher interest rates or more stringent conditions. In addition, the Canada Mortgage and Housing Corporation (CMHC), requires a minimum credit score of 680 for mortgage default insurance. As a result, you won’t be able to qualify for a mortgage unless you have a down payment of 20% or more.
Absolutely, with a credit score of 650, you can qualify for a mortgage in Canada. While this score is not yet in the “good” range, it’s sufficiently close to allow for a wider range of mortgage options. Mortgages insured by the CMHC aren’t accessible as they require a minimum score of 680. Despite this, other lenders may offer reasonable terms and interest rates, allowing you to secure a mortgage.
Yes, it’s possible to get a mortgage with a credit score of 670. While it falls slightly short of the 680 many lenders prefer, you may still qualify for certain mortgage products. However, improving your score by just a few points to reach the 680 mark could potentially broaden your options and result in more favourable interest rates.
Yes, you can often secure a mortgage with a credit score of 680. Many lenders in Canada consider 680 to be the minimum score for conventional mortgage approval. At this level, you’re also likely eligible for a mortgage insured by the Canada Mortgage and Housing Corporation (CMHC), which requires a down payment of as little as 5%. As always, other factors like income, employment history, and debt-to-income ratio also play a role in mortgage approval.
A credit score of 700 is generally considered good and will likely make you eligible for a variety of mortgage options in Canada. Lenders see borrowers with this credit score as low risk, which can lead to approval for a mortgage with favorable terms, including lower interest rates. However, bear in mind that while a 700 credit score increases your chances of mortgage approval, lenders also look at other factors, such as income, employment history, and debt-to-income ratio, when making their decision.
