Many people have long wanted to own a home, rather than rent. Canadian residents may appreciate the additional advantages that come with becoming homeowners, such as building equity and making upgrades to suit their preferences or improve the functionality of a space. However, the majority of Canadians cannot afford to pay for a home without taking out a home mortgage loan. As part of the approval process, an applicant's credit score does hold some weight with lenders.
Credit score is one of the factors that will be reviewed by a lender. It is important in the pre-approval process as well, even though being pre-approved for a mortgage loan does not guarantee that an applicant will secure the loan. Even those with poor credit may secure a home mortgage loan. Learn more about credit score and how it relates to home mortgage loans today.
Credit Score Basics
A good credit score is needed for those looking to be approved for a mortgage loan. Credit score and credit history provides information to lenders on an applicant's ability to make regular mortgage payments. Applicants with good or excellent credit often find it easier to be approved for a mortgage loan, as long as they have a low debt to income ratio and there are no red flags for lenders. Borrowers with good or excellent credit may also find they receive instant approval from a lender, speeding up the home search process. Pre-approval and instant approval for a home mortgage loan often make it easier for potential buyers to be taken seriously by sellers during the home buying process.
Credit Score and What it Means
Credit score is a number that reflects an individual's credit history. Credit history shows information about one's financial past, the ability to make payments and any past bankruptcies or late payments within a specific timeframe. Those that have taken out credit cards and auto loans may see such payments reflected in their credit history. The period in which one has worked to establish their credit, the consistency of payments, and the amount of outstanding debt will all be taken into account by a lender when reviewing the application for a home mortgage loan.
Low Credit Score and Making Improvements
A low credit score, or scores below 600, can make an applicant a higher risk borrower for lenders. Such individuals have been more likely to default on loans. Individuals with lower credit scores may be approved for a home mortgage loan, but may need to pay additional fees to provide security to lenders and will generally pay more to a lender over the lifetime of their mortgage loan.
It is possible to improve one's credit score. Paying down debt, correcting inaccuracies and working on making regular payments are all factors that over time can help increase a low credit score. Those who are looking to begin searching for a home may first want to get a copy of their credit reports and see whether they need to improve their credit prior to applying for a mortgage loan. Canadian residents looking to find out more about their credit score may want to contact Experian, Trans Union and Equifax, and request their credit reports. In some cases, a FICO score, rather than a credit score will be provided. Credit scores may not be the same across all three agencies. It is best to request reports from all three agencies and compare them for any inaccuracies.
Credit Scores and Lender Requirements
Even though there are common factors lenders will review, some have different acceptable risk levels. Individuals who may have been turned down for a mortgage loan with one lender may be approved for one with another lender. Individuals having difficulties being approved for a conventional mortgage loan may want to see if they may qualify for a mortgage through special programs for different groups.
Individuals who are just starting to think about buying a Coopers Crossing home may want to get a better idea of their credit. It is helpful to improve one's credit score prior to seeing a lender. In addition, paying off high amounts of debt can make it easier to be approved for a home mortgage loan. Thinking of seeing a lender soon? Avoid closing credit cards or applying for another line of credit right before applying for a home mortgage loan. If there are inaccuracies on a credit report, make sure to reach out to all the agencies to have errors corrected.
Speak with a lender to learn more about their specific lending requirements and their recommendations to help with the mortgage approval process.