The number one determining factor in obtaining advertised mortgage rates is your credit score. Your credit score is the primary factor that determines whether you can avail of the best rate available for your mortgage application.
What Is A Credit Score?
A credit score is a number between 300 and 900 given to you by a credit bureau. Equifax and TransUnion are Canada’s two main credit bureaus. This number allows lenders to understand how you’ve dealt with credit in the past. The higher your credit score is, the better because a high credit score helps you qualify for the lowest mortgage rates.
Checking Your Credit Score?
You can go directly to Equifax or TransUnion and pay for your credit score check and credit report. Once you know your credit score, you will have a better idea of whether you will need a traditional or a bad credit mortgage.
These detailed reports are expensive but it allows you to review them to ensure there are no errors or omissions. If you make a request by mail, Equifax offers free credit reports but to get your credit score will cost you $11.95 plus tax.
Additionally, Equifax offers a subscription online for $19.95 per month. With TransUnion, you can download a consumer disclosure online but they charge a monthly subscription of $19.95 per month in order to obtain your credit score.
Why Does My Credit Score Matter For Getting A Mortgage?
As of October 2019, $525,125 was the average house price in Canada. To buy a home for that amount, you would have to borrow as much as $517,516. You will be eligible for mortgage financing if you have shown a good history of managing your money. In addition to looking at your employment security, the lender will look at your credit score as a sign of whether you are likely to be able to make your monthly payments.
How is Credit Score Related to Mortgage?
Typically, the best mortgage rates are only available to those who have a credit score of 680 or higher along with meeting all the other criteria by the lender. As long as you are within the range of 681-890, you should be able to qualify for the lowest mortgage rates.
With a score between 600-679, approval is still possible, but some lenders may have stricter criteria and it is very possible your application could still be rejected. In order to get approved, you may need to make a larger down payment or be asked to purchase mortgage default insurance, which protects the lender if you fail to make your mortgage payments. You could also be asked to pay an interest rate premium over the lowest rates.
If your score is below 600, your mortgage pre-approval may not pass with one of the big banks or an “A Lender”. You will also not qualify for a low mortgage rate. The “B-lenders” may let you borrow if you have bad credit, but your interest rate will be much higher. Also, private lenders will typically loan mortgage funds to those with bad credit for rates of 10% or higher.
What Affects A Credit Score?
There are five criteria that make up a credit score: a record of payments being made on time, the number of inquiries or applications for credit, credit utilization, credit history, and credit depth.
How to improve your credit score?
If you already checked your credit score and discover it is too low to qualify for a mortgage from the big banks – it is a good idea to spend some time improving your credit score before applying for a mortgage.
Tips for improving your credit score:
- Pay your bills on time: Set a reminder for your monthly bill payments. You can also use the pre-authorized payment facility from the bank to ensure you never miss a due date for your bills. If you can’t pay the bill in full, don’t ignore it, as that will only harm your credit score.
- Stay under your credit limit: Do not spend any more on credit that you know you cannot pay back in full. This will prevent you from going into debt further and will show credit reporting agencies that you are making efforts to become a responsible spender.
- Do not apply for too many credit cards, as this can be a red flag to credit reporting agencies that you need cash fast.
- Do not close your oldest account, keep it open – the length of your credit history matters.
Unfortunately, you cannot improve your credit score overnight. The process can take a long time, and certain marks on your record, for example, if you have ever been bankrupt or filed a consumer proposal, can take a long time to resolve.
I Have Never Had A Credit Card Or Loan – Can I Still Get A Mortgage?
You would not lend money to someone whom you have never met based on only a promise to pay it back. Nor would you ever lend anything else to a friend who has a history of never returning the items they borrow from you. But you might loan money to a friend who you have known for a long time and has an excellent track record about returning what they borrow. Similarly, mortgage lenders will not lend unless they have some record statements as proof that you will pay back the money they lend to you.
Starting a credit file can take some time and work. This is especially true if you are already an adult. If you are a student in post-secondary education, you can apply for a student credit card to start building credit. As an adult, you will probably have to start with a secured credit card, which requires a refundable deposit. This will allow you to start demonstrating good borrowing habits.
What Can I Do To Make Sure My Mortgage Will Be Approved?
Although there is never any guarantee, there are a few steps you can take to improve your chances of mortgage approval. You should be aware of your credit score even if you are not planning to opt for a mortgage. Do this anyways even if you have only started saving for a home you plan to buy in a few years. If your credit needs work, this gives you time to make improvements. If your credit is good, you can start making your home buying plans with confidence and ease.
In addition to your credit score, you should be planning to ensure your employment and income is stable. Lenders look to see if you have a steady employment history, so do not change jobs right before you plan to buy a home. This is especially true if you’re a first-time homebuyer. If you’re self-employed, you will need a few years of income flow in order to pre-qualify.
Finally, it is wise to contact a mortgage broker and ask to get pre-approved for a mortgage. A mortgage pre-approval is when a mortgage broker asks you a series of questions in order to assess your financial state of affairs. Based on that information, your mortgage broker will pre-approve you for a set purchase amount and mortgage rate that lenders will be willing to offer you for your first term.
As soon as you have been pre-approved, your mortgage broker will then guarantee that the mortgage rate will not fluctuate for a specific period of time, usually 90 to 120 days. You are then “locked-in” to this interest rate. If interest rates go up, you will still benefit from this low mortgage rate. If interest rates go down, then it will be time for your mortgage broker to negotiate with the lender to secure you a new, lower rate.
Dominion Lending Centres NasaKasa
At Dominion Centres NasaKasa we help you get approved based on your history of credit score. Call 905.997.7001 or email email@example.com today and let our expert mortgage specialist’s help you get approved.