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How to get pre-approved for a mortgage with bad credit in Canada?

“Always pick your yard based on your Summer lifetstyle.”


March 29, 2018 - Karl Yeh

 Looking to get pre-approved for a mortgage but have a low credit score? What are your options? In this episode, we discuss how to get approved for a mortgage with bad/low credit score and what's the minimum credit score to get pre-approved. We also explore other options, such as co-signing? 


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Karl Yeh:

Hi everyone and welcome to another addition of homebuyer school. Today I'm joined by Mujtaba Syed, Manager -  Mobile Mortgage Specialist with TD Canada Trust.

And today the question we're gonna answer is  [00:00:30] :

How to get pre-approved for mortgage with bad credit?

So, Mo there's gonna be some people that their credit score isn't high enough or situation in life that unfortunately their credit score isn't that great.

So, can you still get pre-approved for mortgage on that?

Mujtaba Syed:                  

Yeah. That's a really good question Karl.

So, we understand people make mistakes.

We understand that sometimes there's certain things that can come into your life that you didn't plan for and could impact your credit.

So, the different things that we can do during [00:01:00] the whole pre-approval process is to uncover something that you might not be aware of or some underlying issues that might be there, but your specialist should be able to work with you.

If you are looking at buying and you're not currently ready yet they should be able to guide you and coach you in getting that credit where it needs to be or helping it to get even better.

If you really feel like this is a time for you that you're looking at buying there are definitely options we can look at.

How to finance your home

Co-signing as an option for mortgage

We can ask a family member to help you co-sign. That [00:01:30] just means that they're just gonna re-strengthen the deal. The bank will feel a lot more comfortable if they feel that somebody else on the deal with you.

And we can keep a co-signer on the application and just kind of let you work on your credit.

Now, co-signers can always be removed after the mortgage application. You might just need the little bit of help in the beginning.

Once your credit is where it needs to be we can definitely, definitely talk to the lender or the lender can remove that co-signer at that time.

So, it's definitely not the end of the world, but at the end of the day it shouldn't [00:02:00] really stop you from getting out there and getting a pre-approval because worst case scenario at least we can start working on your credit, getting it fixed.

The longer it takes you to work on those credit the longer it takes to get into your dream home.

You want to be able to get into your dream home as soon as possible or find the underlying issue that's stopping you from getting into your dream home.

Karl Yeh:                              Does the ... Let's say we go back to the co-signers.

Does your low credit score affect the
co-signer's credit score if they co-sign?

Mujtaba Syed:                  

Absolutely not. [00:02:30]

So, a co-signer is just technically there as more as strengthening you.

They're more there to provide support to yourself. Their credit score will actually help the bank feel more confident with your credit score.

It will help to get you into that house sooner and I think it's a great thing for a co-signer to do, to be able to do that to really help you out is once you get that mortgage it actually starts helping you build that credit because a monthly payments you're making will actually strengthen towards that credit score.

So, getting that co-signer has multiple benefits. It shouldn't [00:03:00] be something that is looked at in a negative way.

Reach out to your loved ones. Reach out to your family members. Have that discussion with them.

If they have any questions definitely, definitely set that appointment up with your specialist with your co-signer that you might have so they can go over any question that they might have.

There's a lot of uncertainties, a lot of misinformation around that part, but a mortgage specialist or a lender can help you navigate any of that misinformation.

Other options to get a mortgage
pre-approval for those with bad credit scores

Karl Yeh:                             

Any other ways besides having a co-signer [00:03:30] to get that pre-approval for that mortgage or get the approval for a mortgage? Anything else you can do?

Mujtaba Syed:                  

Yeah, absolutely. There's many, many things that we can do.

So, a credit application or a mortgage application is very different. It's not cookie cut.

There's so many different scenarios, strategies we can use to actually help you get approved for a mortgage.

  • It could be a little bit more extra down payment.
  • It could be the fact we could work on reducing the amount that you're looking at being pre-approved for a [00:04:00] mortgage.
  • Maybe we start you off at something a little bit more comfortable for yourself and then maybe in a couple years move you up to something that you're looking at buying.

It could be a lot of different scenarios.

And, once again, it's best to talk to a specialist at your lender and see what options are there for you. There's multiple options.

Never feel like there's only certain options for you. You should always look at all your options and see what best fit you and your situation.

Is there a minimum credit score you need to get pre-approved for a mortgage?

Karl Yeh:                             

Is there a floor for in terms of your credit score [00:04:30] that the banks or mortgage specialists like "Nope. We're probably not gonna pre-approve you." Like an average low or is there a hard set amount?

Mujtaba Syed:                  

Yes. So, technically the Bank of Canada want your score to be about 600 for any insured mortgages. You want to be able to take a look at that.

Sometimes lenders do make exceptions.

It really just depends on, once again, the whole financial picture.

So, credits definitely an important part, but it's not the only part.

We do take a look at to see your stability [00:05:00] with your income. You might have gone through a hardship in your life that impacted your credit. It might be something out of character for you.

So, we will take a look at so many different situations and we can change that. There's other things we could do to get you pre-approved. Like I said, we could increase a down payment.

We could do other things. We feel like the average Canadian is around 640. So, technically anything around there is considered to be a decent beacon score in my opinion.

Karl Yeh:                             

Okay. Great. Is there anything [00:05:30] else you want to add in terms of steps to take to get a mortgage or get a pre-approved mortgage with a lower credit score?

Mujtaba Syed:                  

Yeah. What I would recommend is getting the pre-approval done as a first step so you know exactly where your credit score is.

And if you feel like you're confident with your credit score, it's gonna get you into that ideal dream home that's great, but there's been many, many instances where we've actually helped coach our clients into getting the right, perfect score.

So, it actually made sense for them to wait and [00:06:00] work and do certain things to get their credit score exactly where they needed.

So, it's never the end of the world. So, it might not be ready to purchase today, but it will definitely help you get to purchase a home in the future.

It should never stop you from going out and getting a pre-approval 'cause we can always, always work with credit.

Karl Yeh:                              Perfect. Well, thank you very much Mo. Thank you very much everyone for joining us and we'll catch you next time.

Recommended watch:

So of our other videos that you may be interested in watching related to this topic are:

New mortgage rules and stress test

How to get pre-approved for a mortgage?

How much can you get pre-approved for a mortgage?


Your turn:

Let us know if you have additional mortgage questions or home buying questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from homebuying experts. 

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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