Depending on the lender, a credit score of between 620 and 680 would be the minimum viable requirement in order for you to be approved for a mortgage. For larger lenders across Canada, 680 and above would be the most likely credit score number you need to be approved. For smaller lenders, you may be able to have a score as low as 620 and still be approved.
Ultimately, it will depend on your lender and your financial history to determine whether or not your credit score meets the requirements for mortgage approval.
How do credit scores impact your mortgage?
The way that credit scores impact your mortgage is by increasing your interest rate. For lenders, if they see you have a lower credit score, you are more likely to be a financial risk to them. In order to absolve themselves of that burden, they opt to charge you a higher interest rate to make up for it.
Unfortunately for those seeking a mortgage, a higher interest rate means that you will have higher payments. Payments are affected not only by the cost of the home you purchase, but also by the home loan (mortgage) – how long it is paid over, and what the interest rate is.
What do mortgage lenders look at when you apply?
There are several factors that mortgage lenders look at when you make an application. They will check your income, down payment amount, assets in your name, debts in your name (i.e. car loans, student loans), and credits you’ve got.
Your income will also be put through a stress test (or combined income if you are applying with a co-signer). You must pass this stress test to qualify for a mortgage loan. The stress test ensures that you will still be able to pay your mortgage in the event that interest rates rise (like we are currently seeing in Canada).
Should you get a mortgage pre-approval?
Yes. Not only does it prepare you for purchasing a home as soon as you find something you like, but it also locks you into a potentially better interest rate as rates rise and fall. Mortgage pre-approvals are generally good for 3 months, so you don’t need to worry about going through the approval process again if you’re able to find the home you’d like to buy within that time.
How to improve your credit score
If your credit score isn’t at a high enough number to quickly approve you for a mortgage, then you need to take a look at how you can improve it. There are a number of things that affect your credit score.
First, look at your credit card(s). Try to keep your credit cards at 35% or below (as in, don’t have more than 35% of your total maximum on the card; utilizing less credit can help increase your credit score).
Additionally, try to limit the number of applications you make for loans or credit applications. Hard inquiries affect your credit score. You should also have different types of credits (i.e. a credit card, car loan, and line of credit), as having a variety of credit products can help improve your score.
One of the more obvious ways to keep your credit score climbing is to also pay your bills on time; late payments can have a negative effect on your credit (but not as much as defaulted payments).
On that note, avoid any of your payments going into default. These can heavily impact your credit score and will not be scrubbed from your credit report for a full 7 years afterward.
With that being said, there’s a lot that goes into the mortgage approval and lending process. It can be overwhelming, even for the most experienced housing buyers (let alone those who are entering the market for the first time).
That’s why Axiom Mortgage Solutions is here to help. Give us a call at 519-735-1440 or request more information online to learn more about the best way to go about getting a mortgage (and seeing if you qualify!)
We look forward to hearing from you.