Buying a Home? What to Know About Credit Scores

There are many advantages to buying a home. Canadian residents can avoid having to pay increasing rents and often have more flexibility in making improvements to a home that they own rather than rent. Enjoying a fenced in property can be useful for homeowners with active young children, pets or who enjoy entertaining often.

This may be a good time to grab up an affordable residential property in some parts of Canada. Before getting a heart set on a dream home, understand more about what it takes to get approved for a home mortgage. As many potential homeowners cannot afford to pay cash in full to purchase a home, it is important to know about what areas may require more attention before taking out a home mortgage loan. A high credit score can make it easier to get approved for a home mortgage and go into contract with a seller in Vancouver, Toronto and other competitive housing markets.

Credit Score Basics for Homebuyers

540 or 690, a credit score number signifies a great deal to a potential lender and is a critical factor in getting good rates on loans, as well as being approved for any home loan. The number is only the tip of the proverbial iceberg to a lender as it is based on an individual's credit history. This takes into account a variety of factors, including timely payments on previous loans, credit card payments, late payments and previous bankruptcies or an event such as defaulting on a loan in the past. A low score can mean that an applicant has a high debt-to-income ratio and had trouble making regular payments on debts. A lender will look more favorable on applicants with a high credit score as such individuals are more likely to make regular payments and not default on a loan.

The Benefit of Excellent Credit Scores

Canadians with good to excellent credit scores may have the advantage of instant approvals when applying for mortgage loans. Three private agencies which generate credit scores in Canada or Experian, Equifax and Trans Union. A credit score may also be called a FICO score by the Trans Union agency. Various additional aspects considered when arriving at a FICO score include the various types of credit one has had, any new credit, the length of one's credit history, a person's payment history and their credit utilization. There are multiple factors considered by lenders, but credit score is one of the most important ones when a lender is thinking about whether or not to approve an applicant for a home mortgage loan.

What Do You Know About Qualifying for Canadian Home Mortgage Loan?

Buying a new home may not be as easy as one might initially hope. There may be challenges new homeowners face before they are able to qualify for a home mortgage loan. Unfortunately, those with a history of making late payments, have a poor credit score or have accrued significant debt to their income may find it harder to be approved for a loan.

The good news is that a Heritage Pointe home buyer can take steps to fix such issues. This will not happen overnight but a homeowner can see significant improvement in their credit score in a relatively short amount of time by correct inaccuracies, making payments on time and paying down debt. Doing so can put them in a lower risk category and make for mortgage loan rate differences of 3 per cent. Applicants may want to work with a lender and try to get pre-approved in order to identify any potential issues. Those who are pre-approved may find they are more likely to be considered as serious buyer by sellers.

Credit Score Related Factors Considered By Lenders

Other factors may need to be addressed. Outside of one's credit score, lenders are interested in an applicant's:

• Debt level;
• Income situation; and
• Employment status.

It may be necessary to tackle outstanding debts and show a history of consistent employment before being approved for a home loan.

How to Learn More About One's Personal Credit Score

Canadian residents can get more information on their own credit score. Order a copy of one's credit report to review the credit score and identify any potential issues. There may be errors which when corrected may lead to an improvement in credit score.

Looking to Buy? Review Your Credit Score

Lenders and sellers often prefer working with those with high credit scores. Getting pre-approved for a home mortgage loan often works to a potential buyer's benefit when engaging with sellers and their agents. Take steps to review one's credit score before applying for a home mortgage loan and be more likely to get approved for a home mortgage loan.