Before applying for a mortgage in Canada, there are several requirements that you must meet. A solid credit score is one of the most important considerations. But what are the specific qualities of a good credit score?
In any case, numerous mortgage lenders are available today, and each of these lenders adheres to its own set of lending requirements.
When you apply for a mortgage and hope to obtain the best possible interest rates, your credit score might make a substantial difference in your ability to do so. When it comes to mortgages, your chances are better the higher your credit score.
Read this article to get an idea of the minimum credit score needed to apply for a mortgage and some other considerations you will need to make before applying. But before I proceed, allow me to review what an insured mortgage is.
What Exactly Is Insured Mortgage?
An insured mortgage is a mortgage that is backed by financial protection in the form of mortgage default insurance. If you fail to keep up with your mortgage payments and default on your loan, the insurance protects the lender against losses. It does not protect you, the consumer.
A mortgage guaranteed by the Canada Mortgage and Housing Corporation (CMHC) is one in which the borrower makes a down payment of less than 20 percent of the price of the home they are purchasing, with the minimum down payment set at 5 percent.
Mortgage default insurance is a type of insurance that protects the lender if a mortgagor is unable to make their mortgage payments as agreed.
Mortgage default insurance is a heavily regulated sector in Canada, and Canada Guaranty, CMHC, and Genworth Financial are all vying for customers’ business.
Minimum Credit Score Needed For an Insured Mortgage
The CMHC raised the minimum credit score required for insured mortgages from 600 to 680 as of July 1, 2020. Specialists in the field had varying reactions to this massive growth.
Many others felt the new requirement was too stringent and would keep too many Canadians out of the housing market.
One of the mortgage applicants must have a credit score over the CMHC’s minimum requirement of 580. This makes things easier for married borrowers, as just one must have a credit score of 680 or greater.
What Is A Good Credit Score In Canada?
You might be curious about what constitutes a “good” credit score. In Canada, credit scores can range anywhere from 300 to 900, but you will not find many people with scores in the upper or lower echelons of that spectrum. Most people in Canada have credit ratings ranging from 600 to 800.
Credit scores are given in a range of possible outcomes. You can see how the levels are grouped by looking at the following breakdown of each one;
- A score of 800 or higher indicates excellent performance.
- A score that falls between 720 and 799 is also excellent.
- It is considered a good range when your credit score falls between 650 and 719.
- Fair is regarded to be between 600 and 649.
- A credit score that is lower than 600 is considered to be a poor score.
- How to find out what your credit score is.
It is best to verify your credit score and get a copy of your credit report before applying for a mortgage. All of this preparation needs to be made ahead of time. In several ways, you can get your hands on this data without spending a dime.
Obtaining a copy of your credit report requires contacting the credit reporting organization directly. Before we show you how to do it, let us tell you why this is a route we would not recommend taking.
When it comes to the Canadian credit reporting industry, Equifax and TransUnion are head and shoulders above the rest. Both agencies are required by law to offer consumers a free copy of their credit report once per year upon request. Also, they do it, but they do not exactly make it easy.
Both of these services advertise a premium paid version on their websites. This premium service, which includes monthly credit reports and costs around $20, is available to you.
You may get a free copy of your credit report from Equifax by filling out a form that can be found on their website and then mailing or faxing it to the company, along with identification documents.
Each individual is entitled to one free TransUnion credit report in a given calendar year.
What Are Your Options If You Don’t Have a Strong Score?
If you don’t have a strong score, do not worry, you still have many options to explore. Check these out;
Make a Bigger Down Payment
If you have a credit score on the verge of being considered good or bad, increasing the amount of money you put down as a down payment may enhance your chances of acquiring a mortgage.
To avoid paying for mortgage insurance, a down payment of at least 20% of the home’s purchase price is required. However, a more significant down payment will make your application more attractive by reducing the lender’s risk if you can afford it.
Eliminate Your Outstanding Debt
If you have a high income and assets but have used up all of your available credit, your application will be more difficult to approve. This is due to the fact that a high use ratio on revolving credit negatively affects credit scores. ” The ratio of your total debts to your annual income is a major element in determining whether or not you will be granted a mortgage.
If your credit score is low, getting a mortgage from a large bank is probably out of the question, and you should broaden your search even if going through the numerous different lenders available can be time-consuming. However, you can save yourself the hassle by using us.
Having a high credit score is essential to get approved for a mortgage. Try as much as possible to get your credit score up to at least 680. If it isn’t, it does not automatically mean you will not get the loan, but you probably will not get the best mortgage rates, either.
The good news is that you can take action to boost your credit score and get it closer to where you want it to be, even if it is currently lower than you would like.
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