Buying a home today is much different than it was decades ago. If you’re like most Canadians, you’re going to need a mortgage. You will have to pass some tests prospective lenders will put you through and one of those is checking your credit score.

The prices of homes have continued to escalate over the last 10 years, especially. In fact, the price of an average single family home in Canada today hovers around $504,000. You will have to save a minimum of 5% as a downpayment on a Canada Mortgage and Housing Corporation (CMHC) insured mortgage.

Despite the hurdles, most Canadians have a goal of owning their own homes. They’re striving to save enough for a downpayment and working toward passing the financial tests.

It can be much more difficult to secure a mortgage than it can other types of loans, so having some idea of the process might be helpful to you. Here are some things of which you should be mindful when you need a mortgage:

 

You need to have an established credit history

If your first foray into the world of credit is wanting to buy a house, you might be in for a wake up call. If you have just started to use credit — like credit cards — lenders won’t have a history to go to. You will need to wait and establish that history. Use your credit wisely and it will pay off in the long run. A long and healthy credit history tells lenders you’re a good risk for handling mortgage payments. Having your credit built up is one of the indicators that you will be able to secure a mortgage at an attractive and an affordable rate.

 

Have a good credit mix on your credit report

Lenders want to see that you can manage various credit products like credit cards, loans, and a line of credit. If your credit is less than perfect, there are ways you could change that. You might want to investigate getting a secured line of credit or a secured credit card or look into programs that can help you to build your credit.

Credit utilization ratio

This is the total amount of credit you actually have to use versus how much you’ve actually used. Lenders would like to see that at around 30% or less. The more that percentage is under 30, the better chance you’ll have of being approved for a mortgage. Maxed out credit cards don’t look good on a credit report.

Your debt to income ratio

What you take home from your pay each month versus what you pay against your debt is known as your debt to income ratio. For example, if your take home pay is $6,000 each month and the minimum payments for all your debt every month is $3,000, your debt to income ratio is 50%. Getting that number as low as possible will show the lender you’ll be able to handle your mortgage payments.

Keep inquiries on your credit report down

If you apply for credit cards, loans and other credit products all at once in a short time span, lenders will be able to see that on your credit report. It may make them think you’re in desperate need of some cash. These inquiries also lower your credit score. You don’t want lenders to view you as a big risk.

Aim for a high credit score

For lenders to even consider you for a mortgage, your credit score should be at least 630. The higher your score, the better chance you have of getting a mortgage with an attractive interest rate and terms. Do everything you can to bring your score up. Be able to prove where the down payment is coming from If you haven’t had the downpayment saved for more than three months, you need to be able to prove where the funds came from. Lenders want to make sure you’re not borrowing the money for your down payment. If you have been working to save your down payment on your own, they want to see proof of that. If the down payment was a gift from a family member, it must be accompanied by a gift letter signed by them saying you will not have to pay that money back. Steady and decent source of income A lender will want to know that you have the income to be able to make your mortgage payments and that you’ve been at your job for some time. If you’re self-employed they will want to see bank statements. A credit report without negatives Lenders do not want to see things like bankruptcies or consumer proposals on your credit report. They also don’t want to see late payments, missed payments or payments that didn’t meet the minimum. These things will make getting mortgage approval more difficult.

Why Are Credit Scores Important for Obtaining a Mortgage?

In the world of personal finance, credit scores are all the rage and for good reasons. Credit scores can be the deciding factor on whether or not you’re able to achieve your financial goals. A big goal that many people have is to purchase a house. Just like all other financial products, credit scores have an impact on the type of mortgage you receive and the financing conditions.

To learn more about the relationship between mortgages and credit scores, continue reading below.

 

 

Credit Scores and Mortgages: The Basics

Your credit score is important when it comes to mortgages because it impacts which lender you can obtain a mortgage from. The most ideal lender to get a mortgage from is major banks, such as TD or RBC. You can also obtain a mortgage from a trust company or private lender, but these options are less favourable.

In addition to the lender, your credit score will also determine what interest rate you receive. The reason why it’s best to get a mortgage from a major bank is because they offer the lowest interest rates. Trust companies have medium level interest rates and private lenders have the most expensive interest rates. Low interest rates are important for mortgages because the cost of financing is amplified for large assets like houses.

 

What is the Ideal Credit Score for a Mortgage?

 

To obtain a mortgage with a major bank, the ideal credit score is above 700. The higher your credit score is, the better chances you’ll have at getting approved with a major bank. As for trust companies, the ideal credit score range is 600 to 700. Trust companies specialize in individuals with poor credit. Finally, individuals with credit scores below 600 will likely have to work with a private lender to obtain a mortgage. Keep in mind that the above credit scores are benchmarks. Lenders vary in their approval requirements and processes which means that the ideal credit score for each lender will vary too. A good starting point for credit scores is 700 if your goal is to obtain a mortgage. With that in mind, it’s good practice to boost your credit score as much as possible before you apply regardless of what your value is.

 

What Else Do Lenders Consider?

 

Lenders rarely make an approval decision based solely on a credit score. They will evaluate other aspects of your finances to gain a complete picture of whether or not you’re a good candidate for a mortgage. In addition to credit scores, lenders also consider the following:

● Income and expenses

● Stability of income

● Employment history

● The amount you’re requesting to borrow

● The amount you’re going to put down

● Current debt levels

]● Amortization period of the mortgage

 

What Can You Do To Improve Your Credit Score?

Thankfully, bad credit is never forever credit. If one of your financial goals is to purchase a home, it’s time to start working on your financial habits which will improve your credit score over time. Remember, patience is key. Credit scores won’t increase overnight, it requires dedication to change your financial habits and stick to them.

Below are methods you can incorporate into your daily financial routine to improve your credit score:

● Always pay bills on time and in full

● Pay off outstanding debt

● Avoid using more than 30% of your available revolving credit limits

● Only apply for new credit when you absolutely need it

● Regularly review your credit report for errors or signs of fraud

● Consider credit building products if you’re rebuilding or establishing credit

 

Find the Right Mortgage for You

 

Personal finance essentially boils down to finding the right solutions for your unique financial position. The same is true for mortgages. Whether your credit is excellent or poor, do your best to find a mortgage product that works the best for your circumstances. This can take time, but a mortgage is a serious commitment so you should think about your options carefully. After obtaining your initial mortgage, you can refinance once your credit and other financial circumstances have improved. This is a great way to get a lower interest rate or a more favourable payment amount.

 

Bottom Line

The bottom line is credit scores are important for obtaining a mortgage because they determine the lender you can work with and the interest rate you’ll get. Mortgages are likely the largest financial commitment you will manage in your whole life. For this reason, having decent credit will make the mortgage commitment easier to handle

Planning a move to California? Lucky you! California is a beautiful, warm state with plenty of great beaches, recreational opportunities, sports teams, and colleges to satisfy people of all ages and interests. But navigating a move is a challenge, especially if you’re coming from out of state. To ensure your move goes smoothly, we’ve listed some key tasks to check off your to-do list before, during, and after your move.

Your Pre-Move Checklist

Buying a home and preparing for a major move is a lot of work. Take it one step at a time so you can stay organized!

Find a dedicated realtor who can help you hunt down the perfect California property.
Connect with the pros at Peak Finance Company to find a loan that fits your needs.
Book a moving company a couple of months in advance.
Declutter your belongings so you have less stuff to pack and move.
Pack your moving boxes using a coded system for effortless unpacking later.

Moving Day Considerations

Moving day doesn’t have to be a hectic mess. Stick to a plan so you can avoid mishaps and unnecessary stress.

Remember to pack an overnight bag with stuff you will need when you first arrive at your new home.
If you have pets, make a plan to keep them away from the moving day action.
Keep important documents with you instead of packing them away.

Setting Up Your New Home

Before you go out and explore your new town, take care of those last few moving tasks to make your home livable.

Set up your utilities before moving to ensure your lights, heat, and water are all running when you arrive.
Have any carpeting professionally cleaned (dry cleaning ranges between $75 and $350)
Change the locks to keep your property and your family safe from intruders.
Test your smoke alarms and carbon monoxide detectors.
Locate your breaker box as well as water and gas shutoff valves.

Relocating to California is an exciting experience, but it does come with a few moving-related challenges. From navigating the house-hunting process to setting up your new home, there are several important steps standing between you and your dream life in California. Plan ahead, stay organized, and your move will be over before you know it!

To learn more about how Peak Finance Company can fulfill all your home loan needs, fill out an application or call (562) 818-3502 today!