How to Help Clients with Bad Credit Buy Real Estate
In this episode, Scott breaks down one of the most common roadblocks REALTORS® face: clients who want to buy but have bad credit. Whether it's a primary residence, a rental property, or a commercial investment, there…
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Show notes
Scott Dillingham is a Licensed Mortgage Agent Level 2 who has helped clients finance over $2B+ in real estate. Scott works closely with REALTORS® across Canada to help their clients get financing approved — even in challenging situations. In this episode, Scott breaks down one of the most common roadblocks REALTORS® face: clients who want to buy but have bad credit. Whether it's a primary residence, a rental property, or a commercial investment, there are more options available than most people realize.
When it comes to residential purchases with less than 20% down, a credit score under 600 typically disqualifies a client from a CMHC-insured mortgage. However, clients with 20% or more down can still move forward — often through B lenders or, in more severe credit situations, through private lenders. Scott explains that bad credit is not always permanent or even accurate. The first step he recommends is having every client pull their own Equifax report and review it for errors. Late payments that were incorrectly recorded, or payments made under an informal arrangement that was never honoured by the creditor, can often be disputed and removed, resulting in an immediate credit score boost.
For rental and investment properties, the same credit thresholds apply, with the added requirement of 20% down in all cases. But Scott emphasizes that using a B lender or private lender doesn't have to be a long-term situation. He shares a recent client success story where a borrower with a consumer proposal and multiple late payments was guided to pay off all outstanding debts, maintain clean payment history for six months, and then transition from a private lender to a B lender — with a clear path back to an A lender within a year or two. This structured credit recovery approach turns a "no" into a timeline with a plan.
For clients with very poor credit scores, commercial lending can be a game-changer. Unlike residential mortgages, commercial lenders focus on whether the property can carry itself — meaning the rental income covers the mortgage — rather than the borrower's personal credit score. Scott shares an example of a client with a mid-400s credit score who secured financing on a duplex at an A lending rate through the commercial channel. While commercial loans do carry a broker fee since lenders don't pay brokers directly, the trade-off is access to rates in the mid-to-high 4% range on a five-year fixed, compared to 6–7% at a B lender or up to 12% through private lending. The savings are substantial.
Key Takeaways
- Clients with under 600 credit and less than 20% down cannot qualify for CMHC insurance — they need at least 20% down to have any path forward with a lender.
- Disputing inaccurate items on a credit report can result in an immediate score increase — clients can file disputes directly through Equifax's website, by mail, fax, or email, with results in two to six weeks.
- Creditors must provide proof of a late payment to uphold a dispute — if they can't provide documentation, the item is removed even if the late payment occurred.
- B lenders and private lenders are short-term tools, not permanent solutions — the goal is always to create a structured plan to move clients back to A lending as credit improves.
- Rental properties always require 20% down regardless of credit — clients with bad credit will be placed with B or private lenders, but a recovery timeline can be built.
- Commercial lending does not heavily weigh personal credit scores — approval is based on whether the property's rental income can carry the mortgage, opening doors for clients with very poor credit.
- Clients with credit scores in the 400s can access A lending rates through commercial financing — rates in the mid-to-high 4% range are achievable even for clients traditional lenders would decline.
- Every bad credit client is a future referral and a relationship worth building — setting a clear mortgage roadmap today creates loyal clients and ongoing REALTOR® opportunities tomorrow.
Show Resources
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Links and Show References
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Are you a REALTOR® looking for a trusted mortgage partner? Visit LendCity.ca to refer your clients to Scott and his team — and give them the best chance of getting approved, no matter their credit situation.
- (00:00) - Welcome & Episode Overview
- (00:09) - Bad Credit with Less Than 20% Down
- (00:49) - How to Dispute Your Credit Report
- (01:43) - Using B Lenders & Private Lenders
- (01:59) - Rental Properties with Bad Credit
- (02:27) - Building a Short-Term Credit Recovery Plan
- (03:24) - Commercial Lending: When Credit Score Doesn't Matter
- (04:34) - Commercial Rates, Fees & Savings
- (05:32) - Key Takeaways & Wrap-Up
Realtor questions from this episode
Can a client with a credit score under 600 still get a CMHC-insured mortgage?
Scott says that with less than 20% down and a score under 600, the client more than likely will not be approved for a CMHC loan. With 20% down or more they can usually move forward, but with B lenders or, if the credit is very poor, private lenders instead of banks.
What should a realtor tell a client with bad credit to do first?
Have the client pull their own Equifax report and dispute anything that is wrong, such as a payment marked late despite a payment arrangement. Scott says the creditor has to prove the late payment, and if the dispute succeeds the score gets an instant jump.
Does a client with very low credit have any other option?
Scott says commercial lending can work because the lender looks at whether the property can carry itself rather than at the credit score, and that this can apply even to a single-family property. He gives the example of a client with a mid-400s credit score who bought a duplex. He also notes that commercial deals carry a broker fee.
Transcript
Transcript of the episode as recorded. Rates, fees and program details are as stated on the recording date and may have changed.
Welcome to the Close More Deals podcast.
Welcome to the Close More Deals podcast. Today I'm gonna be talking to you about someone who maybe has bad credit, but they wanna purchase properties. So I'm gonna give you a couple different angles here and I'm gonna try to be quick, cause this is a topic that I could talk about forever, cause there's just so many different nuances. So we're gonna break this down into investment properties. We're gonna break this down into primary residences, that type of thing. So you can kind of see both angles.
We'll mix in residential and commercial as well. on the residential side, If the client has less than 20% down and they have a credit score under 600, more than likely they are not going to be able to get approved for a CMHC loan. They would need to have 20% down or higher to be able to move forward. Now there's a couple things here. Sometimes the bad credit is wrong. So I encourage every client to get their own Equifax report. And if there's things on there that are not right, or maybe, you know, the lender said, I, you know, I'll make a payment arrangement with you.
You can pay the bill, you know, 20 days late and we won't mark it. But then they ended up marking your credit as late, even though you had the payment arrangement, you can dispute that, right? And then those late payments will come off if the dispute is successful and you can move forward. And that's right on Equifax's website. You go to Equifax and it says dispute, dispute your credit report. And then you fill out the form. mail it in, fax it in, they even have an email as well.
It can take two to six weeks, you hear back, and if they did remove it, then your score gets an instant jump. Okay, so that's how we can help clients with bad credit right away. Again, with 20% down or more, they're usually able to move forward, but then we're not dealing with banks, we're dealing with B lenders, and if the credit scenario is really bad, we're dealing with private lenders. So now let's talk about rental properties. So same kind of thing with rental properties, although the 5% down is not available, right?
It's 20% down.
It's 20% down. ah The lenders, yeah, I'm gonna say it's pretty much the same as buying your primary home, except that you need 20% down instead of five. But if you have bad credit, then yeah, you are looking at a B lender or again, potentially a private lender. Now it doesn't have to be long term. So that is the one thing I think clients when they hear I have to go with the B lender or private lender, they think it's like this for everything.
We only try to do it as short term. We just closed a transaction this week. Actually the client had a consumer proposal and all these late payments and stuff, but they received funds and we guided them and we said, okay, pay off everything. Don't be late anymore. Six months, we're going to reconnect. We got you this private loan so you could move forward, but we're going to reconnect. And if your scores have jumped from paying everything and obviously not having any further late payments, then we can look to the B lender and we'll probably have to stay there for a year or two.
And then once credit improves further, then we're going to bring you back to the bank or a bank or equivalent of a bank. Right? So we have a structured plan for this client and it's going to work, but Let's go a little bit on the commercial side. So this is where I was shocked years ago when I started doing the commercial loans. The credit score doesn't matter so much because when you're doing a commercial property and I want to take a step back too, cause when people hear me say commercial properties, I think there's a theme that that means it's uh a retail or a business or a huge apartment building.
No. you can get commercial on even a single family property. Okay, we've got all the connections and contacts. If this is you and you're hearing this and you want access to this, give us a call. All the details are in the show note, but what it is is it's commercial lending. they, in underwriting and they look at the property and they determine if the property can carry itself. And if it can, then you've got the loan like you're good. So. Because of that, they're not really looking at that credit score.
So we had a client with mid 400s as a credit score, bought a duplex,…
So we had a client with mid 400s as a credit score, bought a duplex, got a lending rate. So that's the beauty of commercial, right? There's that a lending rate. There is a fee when we broke our commercial loans, the lenders, don't pay us, not like residential, right? Residential lenders will pay us. A lenders, I'm mainly speaking of B lenders most do, but it's a minimal amount. So there's usually a broker fee on top and the private lenders don't pay either.
So there's also the broker fee on top. But with commercial, we have to have that broker fee there so we can get paid. um But the benefit is you're getting those a lending rates. So as of today, when I'm recording this early March, right, we're talking mid fours, maybe to five on a five year fixed on a rental property through commercial. um So it's like not bad at all, right? It's not bad. Where B lending could be six to seven private, even higher, you know, up to 12.
So when you consider that you're getting that massive uh interest savings, it's just, it's fantastic. So that's kind of that. um And then high level, right? Again, dispute that credit report. I think that's amazing. uh There was a... Like when you dispute a credit report, the people you're disputing with have to provide proof that you were late. So even if you were late, but you made an agreement with them and they don't have a paper trail, like it's gotta come off, right?
Because you're disputing it and they have to battle against that dispute. And if they don't have... the records and then it comes off too. So even if there's some gray area and the lights were from you, by still disputing, could potentially come off. So anyways, I gotta wrap up this episode. I hope it helped. I hope you have found value. If you have any questions, let us know and look forward to seeing you next week. Take care.