What Credit Score is Needed to Buy a House?
Getting approved for a mortgage is an increasingly challenging and tedious process. The higher your credit score, the more likely you are to get approved and get a favorable interested rate too. Your credit score is an important piece of the pie to get you approved and on your way to your dream home. Data from the CBC shows the average price of a home in Canada is $504,350. That’s a lot of money to save up for a down payment and depending on your situation can be downright impossible which is why it is so important to keep a healthy credit score so you can be approved for a mortgage.
What is a Credit Score?
Your credit score is a three-digit number that includes all of your credit-related activity into one average. It’s like a GPA but for your finances. In Canada, credit scores range from 300 to 900. The higher your credit score is, the greater your chance is of getting approved for different loans, including a mortgage.
How Can I Check My Credit Score?
There are a few ways to check your credit score in Canada. First off, you can go directly to the source and pay for your credit report. This can be done via Equifax or TransUnion. If you’d rather obtain a free credit report, you can check your credit score for free by using RateHub.ca’s free credit score tool.
It’s important to check and monitor your credit score so that you can know if you have a decent enough score to purchase a home.
What is a Good Credit Score?
A credit score of 650 and above is considered good. Having a good credit score will make you a desirable candidate to get a loan. If your credit score is 750 or higher, you are in the excellent category and will have even more luck and better interest rates.
What Credit Score Is Needed to Buy a House in 2020?
In order to purchase a house in 2020, you must have a credit score of at least 640. But, depending on the lender, somewhere between 620 and 680 could be considered the minimum. There are other factors that go into whether you are approved for a loan for example if you have a high income but no debt you are more favorable than a borrower with a higher credit score than you but lots of debt.
What Else is Considered When Applying for a Home Mortgage?
Other factors that are taken into consideration include:
- Employment history
- How much you’d like to borrow
- Current debt
They will also calculate your monthly housing costs, this is not simply your mortgage. Your monthly housing cost also includes:
- Property taxes
- Cost of heating and utilities
- 50% of condominium fees, if you are purchasing a condo
Next, your overall debt load will be calculated and weighed. This includes:
- Your credit card payments
- Car payments
- Lines of credit
- Spousal support payments
- Child support payments
- Student loans
- Other debt
You might think that once you’ve started the mortgage application process you’re in the clear but this not the case. Until you have closed on your home and you have the keys in your possession with all of the documents signed, sealed and delivered you could not:
- Take out new loans or lines of credit including for a new car or any other shiny objects
- Quit your job
- Stop making payments on any outstanding credit
- Make large deposits or large withdrawals
- Close credit account
- Make payment on collection accounts
I Have a Low Credit Score, Can I Still Get a Mortgage?
In talking about the minimum credit score to buy a house, we’re talking about going through the big banks. If you choose to go through a more non-traditional lender, they may have less stringent approval processes.
Some of the options for people with low credit scores to lend through are credit unions, trust companies, and subprime lenders. These kinds of lenders are a good alternative for people with less than favorable credit.
If your credit is not the best, another option to still be able to buy a house is to save, save, save. If you have enough money saved up to make a sizeable down payment, you will look a lot more appealing in the lender’s eyes.
One thing to note is that mortgages with these types of lenders typically come with higher interest rates, so you might want to hold off and work on raising your credit score.
How to Improve Your Credit Score
There are a few tips and tricks to quickly improve your credit score in order to buy your home:
- Pay your bills on time
- Pay your bill in full
- Don’t carry a large amount of debt that is left unpaid
- Don’t use more than 30% of your available credit card limit
- Avoid applying for a lot of new credit at once
- Review your credit card statements for any signs of fraud
- A secured credit card is a good option for rebuilding your credit
It’s important that before you make a purchase on a home you have some cash saved up. Obviously, you need money for a down payment but there are a lot of other costs associated with purchasing a home, including:
- Realtor fees
- Home inspection
- Appraisal costs
- Registering your deed or mortgage
As you can see, there are other options to buy a home if your credit is not in that sweet 600 range. But, they come with some downfalls. So, it’s recommended that you take the time to work on your credit score and then buy your house, if possible.
If you have any questions about your credit score or how to improve it in order to buy a house feel free to reach out to us at Pal Property Solutions. We are experts in real estate investing and would love to help you out.