High-Risk Mortgage Lenders: What You Need to Know

Getting a mortgage in Canada is becoming increasingly difficult as banks tighten lending requirements. For those with low credit scores, irregular income, or high debt levels, securing a traditional mortgage may not be an option. As a result, high-risk mortgage lenders are gaining market share, offering alternative financing solutions—but often at a much higher cost. In 2023, private lenders represented 16.8% of all mortgages, up from 13.5% in 2022, reflecting a growing reliance on non-traditional lenders. However, this shift comes with rising delinquency rates, particularly in the unregulated sector, where mortgage defaults have been increasing across all lender types.

While high-risk lenders provide access to home financing for those who don’t meet traditional criteria, they come with significant drawbacks, including higher interest rates, shorter loan terms, and greater financial risk. Ontario and British Columbia account for nearly 90% of alternative lending in Canada, and as more borrowers turn to these options, understanding the trade-offs is crucial.

This article explores how high-risk mortgage lenders work, who they serve, and the risks involved. We'll also cover safer alternatives, including rent-to-own programs like Requity Homes, which offer a path to homeownership without the burden of high-risk loans.

What Are High-Risk Mortgages?

High-risk mortgages are loans seen as more likely to default. This is due to a borrower's financial history, particularly their credit score. Traditional lenders like banks and credit unions usually avoid these. This minimizes their risk. Instead, private lenders, such as B Lenders, often step in. They work with borrowers who have bad credit or irregular income.

Here are some factors that make a mortgage high-risk:

• Low credit scores
• History of late payments
• A borrowing profile not fitting standard terms

In Canada, a credit score below 560 is considered poor, making it difficult to secure a mortgage from a major bank. Borrowers in this category may still qualify for financing but often face higher interest rates and stricter terms. If your credit score is low or you’ve had past payment issues, B Lenders may offer more flexible options—though typically at a higher cost.

Who Needs a High-Risk Mortgage?

High-risk mortgages are for individuals who struggle to qualify for traditional loans. These borrowers often have poor credit scores, high debt-to-income ratios, or a low down payment. High-risk mortgages offer a path to homeownership, even with financial challenges.

Why Borrowers Seek High-Risk Mortgages

Borrowers seek high-risk mortgages for several reasons. These loans are often a last resort for individuals with poor credit scores or high debt-to-income ratios. Such financial challenges make it hard to qualify for traditional loans.

High-risk mortgages usually come with higher interest rates and larger down payment requirements. This is because lenders perceive these borrowers as riskier. Despite these drawbacks, high-risk mortgages offer a chance for those who have run out of options to buy a home or invest in real estate.

Here's a list of reasons why borrowers opt for high-risk mortgages:

• Poor Credit Scores: Traditional lenders may decline applications due to low credit.
• High Debt-to-Income Ratio: To mitigate risk, private lenders may approve these loans.
• Credit History Issues: Negative events like loan defaults hinder standard loan approval.
• Opportunity for Improvement: Making consistent payments can boost credit over time.These mortgages can be a stepping stone for borrowers aiming to improve their financial standing with disciplined monthly payments.

Types of High-Risk Mortgage Lenders in Canada

High-risk mortgage lenders in Canada cater to individuals who face obstacles in obtaining traditional bank loans. These lenders provide options for those with bad credit, low income, or financial setbacks such as bankruptcy. Unlike traditional banks, high-risk lenders have more flexible approval guidelines, though they often come with higher interest rates and fees. Let's explore the types of high-risk lenders available.

Subprime mortgages

Subprime mortgages are offered by private mortgage lenders, also known as B lenders. These lenders are not federally regulated, allowing them to provide loans with more lenient terms. They specialize in helping borrowers with less-than-ideal credit histories. However, due to the increased risk, these lenders usually charge higher interest rates. Borrowers often need to make a down payment of at least 20% when opting for a subprime mortgage.

An example of a subprime lender in Canada is Strive Capital, which offers custom mortgage solutions for individuals with poor credit or those who have been turned down by banks. Another option is Home Trust, a well-known alternative lender that provides mortgages to self-employed borrowers and those with past credit challenges.

Private mortgages

Private mortgages serve as temporary solutions for borrowers. These mortgages often have short terms, usually not exceeding 12 months, and come with high interest rates. Designed to bridge financial gaps, private mortgages focus on home equity rather than credit history. They accommodate unconventional income sources such as rental and foreign earnings. Borrowers should have a clear exit strategy to transition to a standard mortgage to avoid ongoing high costs. Factors like loan term, interest rate, and property location impact the feasibility of a private mortgage.

Notable private mortgage lenders in Canada include Clover Mortgage, which specializes in short-term financing for high-risk borrowers, and Canadalend, a company that provides private mortgage solutions for individuals with bad credit or that are going through debt consolidation. Brampton Mortgage Broker also offers private lending options for those seeking fast approval on home equity loans.

B-lenders

B lenders are financial institutions that provide mortgage products to those with low credit scores or uneven income. Unlike traditional banks, B lenders are more flexible in their lending criteria. They do, however, charge higher interest rates due to the increased risk. B lender mortgages are often for shorter terms, typically ranging from 1 to 3 years. These lenders consider a range of factors beyond just credit scores, making them a practical option for many. Working with a mortgage broker specializing in B lender products can help borrowers find suitable solutions for their needs.

Examples of B lenders in Canada include Equitable Bank, a popular choice for borrowers who don’t meet traditional bank requirements, and Haventree Bank, which specializes in mortgage solutions for individuals with credit challenges. Another key player is First National, a leading alternative mortgage lender offering flexible financing options for self-employed individuals and those with non-traditional income sources.

Qualifications for High-Risk Mortgages

High-risk mortgages are for those who can't meet traditional lender standards. If your credit score is low or you have a high debt-to-income ratio, you might find it hard to get a regular mortgage. But, alternative lenders like private mortgage lenders or B Lenders can help. They are more flexible with their requirements. Keep in mind, though, that these mortgages often have higher interest rates and fees. The risk is higher for the lender, so they charge more. However, if you make your payments on time, this type of mortgage can help improve your credit score over time.

Credit Score Requirements

For a traditional mortgage, you generally need a credit score of at least 660. Some bad credit mortgage lenders, however, may go as low as 500. If your score is under 560, private mortgage lenders might be your best bet. They often consider other factors beyond credit history. With a high credit score (700+), you'll get better rates. Lower scores often result in higher interest rates and increased costs. Mortgage brokers who specialize in bad credit know many options that can help you find a suitable mortgage.

Read more about how to improve your credit score to buy a house

Income Verification

Verifying your income is vital for high-risk mortgage approvals. Traditional lenders want proof of a stable income. If you can't show this, it may difficult to get approved. If you're self-employed, you can use a self-employment income declaration. This helps support your income claims and might get you a high-risk mortgage. Private lenders don't focus as much on income verification. Instead, they look at things like home equity. High-risk mortgage products are suitable for those with unique income situations. Accurate income documentation is crucial in this process.

Employment History

Lenders like applicants with stable job histories. If you're self-employed or have irregular hours, you may be seen as high-risk. Banks usually want at least two years of Canadian employment history to approve a mortgage. New immigrants often find it tough to get mortgages because of limited employment history. Private lenders might be a better choice for them. High-risk categories can include a down payment of less than 20% or past payment delinquencies. Consistency in employment is a big plus and makes you a lower risk for lenders.

Pros and Cons of High-Risk Mortgage Lenders

High-risk mortgage lenders offer an alternative route to home financing for individuals with less-than-perfect credit. These lenders cater to borrowers who may struggle with traditional banks. However, opting for high-risk mortgage lenders has its own set of advantages and disadvantages.

Advantages of High-Risk Mortgages

1. Access to Financing: High-risk mortgages offer an opportunity for individuals to secure funding despite having financial challenges or bad credit.
2. Credit Score Improvement: By consistently making payments on time, borrowers can improve their credit scores. This boosts their future chances of qualifying for traditional loans.
3. Higher Loan-to-Value Ratios: Private lenders may allow borrowing up to 90% of the property's value. In contrast, traditional banks might cap this at 80%.
4. Speedier Approval: The underwriting process for these loans is faster. Private lenders can often approve within days, whereas banks might take weeks.
5. Future Financial Flexibility: Maintaining equity in a home with a high-risk mortgage may provide options for equity-based loans later.

How to Qualify for a High-Risk Mortgage

High-risk mortgages are for borrowers who don’t meet traditional bank requirements due to bad credit, high debt levels, or inconsistent income. If you've been denied a mortgage by a major bank, alternative lenders can still provide financing. However, qualifying requires careful preparation and an understanding of what lenders look for.

Steps to qualify for a high-risk mortgage

1. Check your credit score and report

• Request a free credit report from Equifax or TransUnion.
• Look for errors or discrepancies and dispute any inaccuracies.
• Understand your credit score—most high-risk lenders accept scores below 600, but the lower the score, the higher the interest rate.

2. Reduce your debt-to-income ratio (DTI)

Lenders assess your DTI, which is the percentage of income used to pay debts.

• Pay down credit card balances, personal loans, or outstanding debts to improve your ratio.
• If your DTI exceeds 50%, consider consolidating debt before applying.

3. Save for a larger down payment

• Most high-risk lenders require a minimum of 20% down, as they don’t offer CMHC-insured mortgages.
• Save for a larger down payment to reduce lender risk and secure a lower interest rate.
• If you don’t have enough savings, consider:
  
  • Borrowing from RRSPs under the Home Buyers’ Plan (HBP).
  • Receiving a gifted down payment from a family member.

4. Prepare proof of income and financial stability

• Unlike traditional banks, high-risk lenders accept alternative income sources, including:
  
  • Self-employment income (tax returns, bank statements).
  • Rental property earnings.
  • Freelance or gig economy work.
• Provide at least 6–12 months of bank statements to demonstrate consistent cash flow.

5. Work with a mortgage broker specializing in high-risk loans

• A mortgage broker can connect you with private lenders, B-lenders, or subprime mortgage providers.
• They help negotiate better terms and increase your chances of approval.
• Brokers also compare multiple lenders to find the best rates and fees.

6. Consider co-signers or joint applicants

• If your credit is too low or income is unstable, a co-signer with good credit can improve approval chances.
• Some lenders allow joint mortgages with a spouse, partner, or family member to increase total qualifying income.

7. Be prepared for higher interest rates and fees

• High-risk mortgages come with higher interest rates (typically 6%–18%, depending on the lender).
• Additional lender fees may apply, such as:
  
  • Origination fees (1%–3% of the mortgage amount).
  • Broker fees if using a mortgage agent.
  • Legal fees and appraisal costs.

8. Have an exit strategy

• High-risk mortgages are typically short-term (1–3 years).
• Plan to:
  
  • Improve your credit to qualify for a traditional mortgage later.
  • Refinance with a lower-rate lender after stabilizing your finances.
  • Sell the property if necessary to avoid long-term high-interest payments.

By following these steps, you can improve your chances of qualifying for a high-risk mortgage and work toward a more stable financial future.

How to Find Reputable High-Risk Mortgage Lenders

Finding reputable high-risk mortgage lenders requires careful consideration and research. Here's how you can find lenders who suit your needs:

Steps to Find High-Risk Lenders:

1. Research Online: Start by looking for private mortgage lenders and B lenders near you on search engines like Google or Bing.
2. Check the Reviews: Read customer reviews and ratings to gauge the lender's reputation. Online platforms often have reviews that offer insights into the lender's reliability.
3. Compare Interest Rates: High-risk lenders often charge higher rates. Compare rates from multiple lenders to ensure you're getting a fair deal.
4. Assess Fees: Look for any hidden fees or extra charges. A reputable lender will be transparent about all costs involved.
5. Verify Credentials: Ensure the lender is licensed in your state or province. This helps avoid scams and unreliable lenders.
6. Consult Professionals: Mortgage brokers and financial advisors can recommend trusted high-risk lenders.

Alternatives to High-Risk Mortgage Lenders

Before moving forward with a high-risk lender mortgage loan, consider these alternative options.

1. Apply for a Rent-to-Own Program

Rent-to-own programs, like those offered by Requity Homes in Canada, allow you to rent a home with the option to buy it later. This approach lets you build equity and improve your credit score while saving for a down payment. It's a flexible path to homeownership without the immediate financial strain of a high-risk mortgage.

Read more about rent-to-own vs mortgage

2. Improve Your Credit Score

Improving your credit score can broaden your mortgage options with traditional lenders. Here’s how:

• Pay Down Debts: Lower your debt-to-income ratio by paying down existing debts.
• Consistent Payments: Make your payments on time to build a positive credit history.
• Credit Report Check: Look for errors on your credit report and dispute any inaccuracies.

Choosing rent-to-own can also help you build credit.

3. Seek a Co-Signer or Guarantor

A co-signer or guarantor with good credit can enhance your mortgage approval odds. Consider asking a family member or close friend to support your mortgage application, which can make traditional lenders more amenable to working with you.

4. Explore Government Assistance Programs

Government programs can ease the burden of buying a home:

• First-Time Home Buyer Incentive: This program reduces monthly mortgage payments by sharing equity with the government.
• Home Buyers' Plan (HBP): Use your RRSP savings for a down payment as a first-time buyer, making homeownership more accessible.

Consider Renting-to-Own with Requity Homes Before a High Risk Mortgage

For newcomers, self-employed individuals, or those with a history of consumer proposals or bankruptcy, high-risk mortgage lenders can seem like the only option. However, these loans often come with steep interest rates, short terms, and higher fees. Before committing, explore alternative options like rent-to-own arrangement.

Companies like Requity Homes offer programs where you can rent a property while gradually building equity. This allows you to improve your credit score and financial standing. As your credit history improves, you may better qualify for traditional mortgages with preferable rates and terms.

Here’s why renting-to-own could be a better choice:

• Build Equity: Part of your rent goes towards purchasing the home.
• Improve Financial Health: Time to enhance your credit score and income ratio.
• Gain Homeownership: Transition from renting to owning without immediate risk.

Considering rent-to-own in Canada first can offer a more manageable and strategic route to buying a home without the burden of high-risk mortgages.

Ready to see if rent-to-own makes sense for you? Start your free rent-to-own application with Requity Homes.

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