Bad credit can set anyone up for financial failure in the future. Bad credit can keep average Canadians from borrowing money to purchase things essential for a modern life, such as a housing loan. Banks, which are the biggest provider of housing loans, rarely look twice at a mortgage application with a history of bad credit. Borrowers with bad credit are considered to be at high risk for delinquency.

There’s little that a mortgage applicant with bad credit can do to convince a bank otherwise in a short period of time. Rather than letting go of your dreams of owning a home in Canada, it’s better to look at ways to improve the situation. Basically, housing loan applicants with bad credit have three options to own a home: the first is to work hard and save enough money, the second is to improve current credit, and the third is to apply for a bad credit mortgage.

Saving Money to Buy a House

The first option—to save enough money to buy a house—is the hardest one, possibly unreachable for many. If a Canadian has bad credit, that means he or she has borrowed money a lot. It’s possible that the person earns only low wages, has high-interest generating loan or has other expenses that require constant borrowing. It’s obviously very difficult to save in a situation like this. Even if the person manages to put aside a certain amount of money, he or she will have to save for decades until there’s enough to buy a house. It’s possible to save just enough to start a business to make profitable income. However, hitting the jackpot like this is a highly unlikely scenario. Therefore, it’s best to consider one of the other two options instead.

Improving Bad Credit

The second way to buy a house with bad credit in Canada is to improve the credit rating, and then apply for a mortgage. Bad credit is not a life sentence. It’s possible to make tarnished credit histories look good again to a bank or a traditional housing lender. Improving bad credit is as simple as paying down debt. Then again, as people with bad credit may already know, it can be very difficult to pay down debt. If the debtor has a good strategy, however, it is entirely possible to be debt-free with a stellar credit rating.

In order to pay down debt, the debtors should first make a budget to eliminate all unnecessary expenses and use the funds towards paying off the bills. Some loans may incur sky-high interest rates. If this is the case and the debtor is close to a default, it’s possible to renegotiate the debt. Creditors don’t benefit from defaulted loans and might write off a portion of it. Use tactics such as this to eliminate debt, which will naturally improve the credit rating, which in turn will open the doors for a conventional housing loan.

Bad Credit Mortgages

The final, and the most likely, option for buying a house with bad credit is to take out a special bad credit loan. Debtors will not have to wait until debt is paid down and credit ratings have improved to own a house this way.

Bad credit mortgages, like the name suggests, are type of housing loans that are offered exclusively to applicants with bad credit. So, bad credit is not a reason for disqualification. As long as applicants have a steady source of income, they can obtain a bad credit housing loan to buy a home without delay.

Many small-time lenders in Canada now offer these alternative mortgages, which are designed after similar types of housing loans were introduced in the United States. The biggest con is that alternative mortgages have higher interest rates than regular mortgages.

If you are a borrower with bad credit, carefully consider the above three options if you are hoping to buy a home. Seek advice regarding whether you should wait another two or three years to improve your current rating and apply for a conventional mortgage, or to go ahead with a bad credit mortgage right now.