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What Credit Score Is Needed to Buy A House?

What Credit Score Is Needed to Buy A House?

One of the most significant aspects to consider when getting a suitable mortgage is our credit score. What does it take to purchase a home with the least acceptable credit score?

What Credit Score Do I Need To Buy a House?

Your credit score ranges from 300 to 900. Every lender will have different requirements regarding the minimum credit score required to be eligible for a mortgage and what establishes a "good" score.

However, as a rough rule of thumb, traditional lenders, which include the Big Six Banks, usually ask for at least 680 credit scores as minimum requirements. With less than a 20% down payment, CMHC-insured mortgages need a minimum of 600 credits.

The higher your credit score, the more likely that you are both eligible for the loan and that interest rates will be lower.

Can I Get a Mortgage With A Bad Credit Score?

While having a good—or even excellent—credit score increases your likelihood of getting approved for a home loan, it is still possible to secure mortgage financing with poor scores in these cases. Here are some strategies on how you can qualify if you don’t have perfect credit:

Increase your down payment. The more cash you have up front, the less important your personal credit rating becomes to lenders.

Lower your debt-to-income (DTI) ratio. Your DTI is how much debt you have relative to your income. If you have too much DTI, then this means it’s much harder for you to make all mortgage payments should an emergency come up suddenly. Then again, if your DTI could be lower, then making regular monthly repayments won’t cause any difficulties under any circumstances.

Change your expectations. You may not be able to borrow as much money as you want due to bad credit ratings. In order to get approved for the loan, buying something cheaper than you initially wanted or desired may be necessary.

Look at alternative lenders around town. When considering a mortgage, you might initially think of the Big Six banks, but these traditional lenders usually have high qualifying standards. In this case, alternative lenders include your local credit unions, mortgage or loan companies, and private lenders.

Consider a co-signer. If you can’t get a mortgage on your own, adding someone else’s name as a co-signer may help since they will vouch for you by demonstrating that they believe in your ability to pay off all monthly mortgage installments. However, being a co-signer is a big responsibility, so make sure you understand the terms before you decide to go through with it.

Add a guarantor. Like having a co-signer, there is someone who will guarantee that you can repay the mortgage loan. However, they take a different level of responsibility. 

Where To Check Your Score

There are two leading consumer agencies in Canada where we can check our credit scores: Equifax and TransUnion. One free credit report per year is available on request. Additionally, many banks offer free credit scores as well.

How Your Credit Score Affects Your Mortgage Rate

When assessing your eligibility for the mortgage programs, lenders do not only tell you which loan is best. Additionally, when choosing a mortgage program that suits you, banks assess borrowers by their credit scores. To know whether they will be able to default or not. A higher score indicates a lesser risk of missing payments and foreclosures. Hence, it becomes easier to get approved for lower interest rates.

In most cases, excellent or outstanding ratings range from 670-850+. Thus, home buyers are likely to receive some of the most favorable mortgage rates.

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