A mortgage is a loan for a lot of money, usually given to purchase property, but also provided to those looking to make renovations or get extra cash from their existing property’s value.
When looking for a mortgage, lenders want to know that they can trust you with that sum of money. It’s why they conduct a thorough background check during the qualifying process. One of the things they want to see is whether you have a high or low credit score. The answer to that question will impact whether your mortgage application is approved, and what types of interest rates you’re offered.
What is a good credit score?
In Canada, whenever you borrow money (credit) it gets added to your credit report. How you handle paying that money back will influence your credit score. If you’ve been reliable at paying your debt back, your score will be higher. However, missed payments, high credit card balances and loan defaults bring your rating down.
Credit scores fall between 300 and 900, with anything over 700 deemed excellent. However, if you’re between 650 and 700, you’ll likely still qualify for the lowest mortgage rate. While it is good to keep your credit score as high as you can, once you reach 700 there is little difference to lenders. In other words, if you score 900 it won’t qualify you for better rates than someone who only has a score of 700.
It is important to note that if you’re putting down less than five percent for a down payment, you’ll need to have mortgage default insurance. And, to qualify for that insurance, you’ll need a credit rating of 680 or higher.
What if I have a low credit score?
You may still qualify for a mortgage if your credit score falls below 680, but you won’t be getting the best interest rate available. You’ll need to look for B lenders rather than A lenders. B lenders will allow you to get loans if you have a score under 600, but they often have additional fees and higher interest rates.
If you have a low credit score, there are two options:
- Wait to buy a home and work on improving your credit score.
- Apply to a B lender and consider making a larger down payment or get a co-signer for the mortgage.
How to Boost Your Credit Score
There are many things you can do to improve your credit score. It may take some time, but it will be worth it to have lower monthly payments for the life of your mortgage.
- Pay your bills on time – late payments lower your credit score.
- Monitor your rate – keep an eye on your rate by checking it every six months.
- Keep debt low – don’t max out your credit limit. Rather, try to keep your credit card balances low. It makes you look more responsible to lenders.
- Avoid default – having a collection agency take over your debt will hurt your credit score.
If you are interested in learning more about how your credit score impacts your mortgage, and what mortgage solutions in Ontario are available for you, call Northwood Mortgage™ at 888-492-3690 or contact us here.