When it comes to buying a new home, more often than not we tend to prioritize the neighbourhood it’s in, what features it has, if it needs any upgrades, and the resale value. But, while you might be debating the condo with the extra den or the one with the larger balcony, or if you’re deciding if investing in the fixer-upper is the way to go, there might be one other thing to consider on your home-buying journey: your credit score.
From the second you’ve made your first purchase with your first credit card, you’ve begun to build out your credit score. While it might seem ironic that the more you spend the more you can increase your score, it really is the way to go.
This three-digit number summarizes all your credit-related activity, which includes the amount of debt you have, the frequency and consistency that you pay your bills, and the length of your credit history.
In Canada, your credit score can be any number from 300 to 900, and the higher your credit score the higher your chances that banks and lenders will be willing to approve you for a loan, other credit products, and, of course, your mortgage.
While there are a number of factors that impact your mortgage approval, in 2022, to get approved for a mortgage in Canada, it’s important to know that you’ll need a credit score of at least 680. Although it’s possible to get a mortgage with a score of 600 to 680, the higher your score, the better your chances of a lower interest rate:
Getting a mortgage in Canada is one of the largest loans you’ll be getting in your life, but even if your credit score isn’t exactly where you want it to be, that doesn’t mean there aren’t workarounds.
A credit score is only one factor when it comes to securing a mortgage. Generally, if you also have a high income and only a little debt, there’s a chance you’ll be approved for a mortgage with a score between 600 to 680.
However, if you’re willing to wait–in order to get approved and to receive the best possible interest rate–you can take the time now to increase your credit score.
The best way to do that is to:
One of the easiest and best ways to improve your credit score is to pay off any outstanding debt you have left. This is great, because the less debt you have means the more debt you’re able to take on, which makes lenders feel much more confident in your ability to contribute to your payments on time.
Try to also have a credit utilization ratio of 30%. This is a great way to stay in good standing with any lender and to increase your credit score. For example, if your credit card has a limit of $10,000 and your line of credit has a limit of $5,000, only use $3,000 on your credit card and $1,500 on your line of credit.
Did you know that paying your bills consistently and on time makes up 35% of your credit score? When you’re late on a payment, or miss one altogether, you put yourself at risk of decreasing your credit score–even by 150 points.
From student loans to car loans, from credit card statements to utility bills, phone bills, internet bills, and insurance premiums, it’s important to stay on top of all your bill payments. One of the best ways to start is to set up automatic payments or even noting the payment due dates on your calendar.
While you usually only need a down payment of 5% to 20% of the home’s cost, if possible, consider giving a down payment larger than 20%. By doing this, you have the chance to lower your monthly mortgage payments, making it much easier to manage in the long run.
Having a larger down payment can also prove to lenders that you are fiscally responsible, with the ability to budget, save, and that you may also have a larger income.
If time is of the essence, but you don’t have at least a 20% down payment, consider purchasing a home with a co-borrower or co-signer, to help you qualify.
With a co-borrower, they also own and have equal rights to the property. A co-signer is someone who promises that if you are unable to make your mortgage payments, they’ll do so for you. For the latter, you’ll definitely want a co-signer who isn’t just willing, but who also has good credit, a good income, and not a lot of debt.
In some situations, co-borrowers or co-signers are usually a parent or partner.
Although you may turn to your bank to help you secure a mortgage, you’ll generally need to have a credit score above 600 to be approved. If you feel your credit score may put a wrench in those plans, you can consider alternative lenders like a credit union, private lender, or a mortgage company like Pine to help provide you with options.
While it might be disheartening if your score is below the recommended amount, it doesn’t mean you can’t land your dream home.
Credit is a huge part of the underwriting process that, at Pine, we’ve created different mortgage programs if you have a bruised credit. Just fill out the short application and one of our agents will be happy to see what we can do for you.