When buying a home, you could either opt to pay outright, or the more common option, opt for a mortgage. Since the vast majority uses the mortgage option, it is, therefore, a relatively competitive avenue with a lot riding on a few factors. One of these few factors is your credit score.

Your chances of getting approved, the mortgage interest rates you can access, the mortgage types available to you as well, and even your choice of lender rests on your financial health; a major component of which is your credit score. 

So, if you are wondering what credit score is needed for a house or the minimum credit score for mortgage Canada, this article supplies the answers you need.

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Key Takeaways

• Your credit score impacts your chances of qualifying for a mortgage as well as the mortgage interest rates that would be available to you 
• The credit score required for mortgage or average credit score to get a home loan is 650 for traditional lenders 
• If you don’t meet the minimum credit score required to buy a house used by traditional lenders, you can still purchase a home by opting for B Lenders 
• Various factors affect your credit score such as debt-to-income ratio, credit history, and credit type, amongst others 

What Is the Minimum Credit Score for a Mortgage in Canada?

What credit score is needed for a house in Canada? The minimum credit score needed for mortgage Canada mainly applies to traditional lenders. This is because traditional lenders offer the lowest interest rate and generally have more favorable terms.

To get a mortgage through a traditional lender, the credit score for a mortgage in canada requirement is 650. 

However, if your credit score for a mortgage is lower, you could explore other options which may be less favorable. If you’re uncertain about your credit score, you could request it from either TransUnion or Equifax Canada  – the Canadian credit-reporting agencies. A free copy is available each year and then checking randomly at other times would attract a little fee.

How Credit Scores Impact the Mortgage Process

The major factors that impact the mortgage process are linked in some way or the other to your finances. This is not surprising since what lenders are trying to determine is how much you can borrow and pay back without hassle. 

Given that your credit score is indicative of how you have handled debt so far, it is of major interest to lenders. 

Here are two ways that your credit scores can impact the mortgage process:

Qualifying for a Mortgage

In Canada, lenders review your credit score to determine whether you initially qualify for a mortgage. Any credit score 660 and 724 is regarded as good, and lenders interpret this as there being a low chance of you defaulting on the loan. 

This makes you a safe candidate that has a good credit score needed for mortgage.

Getting a Favorable Interest Rate

Your credit score can play a major role in helping you to get the best mortgage rates that lenders are offering. With respect to mortgages, a higher credit score translates to better rates. Specifically, a 650 credit score in Canada is only the starting point.

Borrowers with a credit score above 680 get better rates and the best rates are offered to Canadians whose credit scores are 740 and above. This answers the ‘what credit score do you need to buy a home’ question.

Factors That Impact Your Credit Score

Your credit score is determined by a culmination of factors that can do some serious damage if not properly managed. It is therefore important to have a knowledge of the factors so that you can effectively strategize ways to maintain a good score: 

• Payment History: Do you miss payment deadlines or are your credit card bills paid on time always? 
• Credit History: How long have you had your credit accounts? Usually, a longer duration is better.
• Credit Utilization: What portion of available credit do you use? Less than 35% is ideal.
• Types of Credit: Do you have more than one type? A mix is advisable such as having a line of credit alongside a credit card.
• New Credit Requests: Have you requested new loans or credit cards recently? And how often?

This is an essential bit if you are wondering how to get approved for a mortgage Canada. So, since you know what credit score is needed for a mortgage, you can get to straightening out your finances. 

Other Factors That Impact Your Mortgage Rate & Approval Process

Your credit score is an essential factor in the process of getting a mortgage approval, however, that isn’t all your lender considers. 

So, in addition to meeting the minimum credit score for mortgage requirement, here are some other factors that may impact your qualification:

• Debt Service Ratios: Comprising your Total Debt Service ratio and Gross Debt Service Ratio 
• Debt-to-Income Ratio: High income and little to no debt may allow you to qualify for a mortgage even with a slightly below-average credit score
• Loan Amount: The higher the amount, the higher the lender’s risk
• Amortization Period
• Your Employment History/Record
• Purpose of Real Estate Being Purchased 
• Present Debt: Including student debt, car payments, line of credit, credit cards, etc 
• Monthly Payments: Total payments associated with the home that you would be making monthly incorrigible mortgage payments, utility bills, property taxes, etc 
• Results of Stress Test: This is used by the lender to ascertain whether you are capable of handling mortgage payments even if interest rates were to rise. Lenders would typically do this by adding 2% to your potential rate or approve you at 5.25%

Frequently Asked Questions

Final Thoughts

Now that you know  what credit score you need to get a mortgage as well as how to go about qualifying for a mortgage canada, you can work towards improving your credit score. Also, be sure to take note of other factors required for qualification so that your qualification chances are not impacted negatively. 

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