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Question: What Credit Score Do I Need To Get A Mortgage?

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If you’re thinking about purchasing a new home or refinancing your existing mortgage, you should know that your credit score is very important.

 

Why? Well, banks and mortgage lenders use your credit score to evaluate your credit-worthiness, which translates to a higher or lower mortgage rate, and even outright eligibility.

 

Which Credit Score Do Mortgage Lenders Use?

First and foremost, you might be wondering which credit providers mortgage lenders use, seeing that there’s no sense focusing on something they won’t actually look at to determine your creditworthiness.

 

I’ll save you the suspense. The short answer is EQUIFAX credit scores, which are the industry standard and relied upon by just about everyone. I think something like 9 out of 10 lenders use EQUIFAX, and it’s pretty much 100% in the mortgage world. The only major lender to use your TRANSUNION score for mortgages is Royal Bank of Canada (RBC)

 

So it is senseible to say that you should focus on your Equifax credit score before you begin the mortgage approval process.

 

Know Your Credit Scores Long Before Applying for a Mortgage

Before you actually head out to get a mortgage, it’s good practice to view your credit score long before you apply. I’m talking several months in advance because any necessary credit score changes and improvements take time.

 

For example, any mistakes (or legitimate issues) holding your credit score down may take weeks or even months to get cleared up. And you won’t want to leave anything to chance. Yes, the credit bureaus (Equifax and Transunion) are bureaucratic, so nothing happens all that quickly.

 

Lower Credit Score = Higher Mortgage Rate

Put simply, a lower credit score will lead to a higher mortgage rate, and vice versa. This all has to do with risk. The lower your credit score, the higher the chance you’ll default on your mortgage, at least that’s what the statistics say.

 

So if your credit score is too low, you probably won’t even get approved for a mortgage. Lenders simply won’t want your business. It’s just that risky.

 

But assuming you are approved with sub-par credit, why accept an inflated interest rate and a much higher monthly mortgage payment? You’d be throwing money out the window.

Lately, banks and lenders have become even more stringent, requiring higher credit scores than they have in the past.

 

Insurers (CMHC, Genworth, Canada Guaranty) Minimum Credit Score

For example, there is now a minium credit score of 620 on insured mortgages. But please note many lenders will not approve you with the minimum as they have specifics when it comes to the miniumums and most require 640 credit score.

 

Credit Score Below 600 Considered Subprime

As far as conventional mortgages go, a credit score below 600 is considered subprime, meaning you’ll have a difficult time qualifying for a mortgage, and if you do, you’ll receive a subprime mortgage rate. By subprime, I mean much higher.

 

In general, you want a credit score above 680 to avoid any adjustments, but a 720 credit score might be the new rule if you want the best possible terms and lowest rates.

 

If you’ve got excellent credit, you can even get a reduced mortgage rate, so it’s always recommended to strive for the best.

And though credit scoring is just one of the many criteria used to judge your borrowing capacity, it impacts how much you can borrow, your max loan-to-value ratio, and what you can do.

 

In summary, your credit score is probably the one thing you have complete control of, whereas things like job, income, and assets can be at the mercy of external forces. So do your best to strive for perfection in order to get the best deal on your mortgage.

 

Some Useful Credit Tips for Those Shopping for a Mortgage

  1. Credit scores are the single most important factor in determining your mortgage rate
  2. Aim for a 720+ credit score to get the best pricing and to avoid scrutiny
  3. Credit scores aren’t everything, what’s on your credit report matters as well! Recent missed payments, collections are a big No No!
  4. Know the contents of your credit report and what your scores are long before your lender does
  5. Any mistakes or missteps can be corrected, but take time, often several weeks to months!
  6. CMHC and other insurers now requires a minimum credit score of 620, but in most cases you still will not get a mortgage with that kind of score.
  7. Conventional mortgages generally require a minimum credit score of 600.
  8. Credit scores below 620 are considered subprime and will be priced much higher
  9. Lenders generally pull your Equifax credit score
  10. Low credit scores can also disqualify you for certain mortgage programs and/or limit your options
  11. Don’t mess with your credit before or during the mortgage application process!
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