From Credit to Home: The Path to Mortgage Approval in Canada
Recession is causing havoc worldwide and has made things expensive ranging from daily groceries to the housing market.
In Canada, prices of homes are steadily rising and may not stop shortly.
During these times, getting your mortgage approved is stressful as these costs are rising, and the mortgage approval rules are getting stricter.
No matter what the current circumstances are, the most imperative factor that remains constant for people searching for a mortgage is the credit score.
A decent credit score will ease your mortgage approval process, and you will get a low-interest mortgage if your credit score is high.
● For first-time house buyers, your credit score must be above 680 to have CMHC insurance.
Minimum Credit Score for Mortgage Approval in Canada
The first thing a lender goes through when checking your mortgage application is your credit score.
● The minimum score set by the CMHC (Canadian Mortgage Housing Corporation) is 680.
● It is the minimum credit score required to get your mortgage approved.
If the property is priced at less than $1,000,000 and the down payment is less than 20% of the original cost, you must buy a CHMC mortgage loan insurance.
Even if you are piggy banking from an account of your friend, he should have a minimum credit rating of 680, and the more is better to qualify for better interest rates.
● Homebuyers who cannot afford to pay a down payment of 20% of the original price of the property are only eligible for this CHMC mortgage loan insurance.
● However, people must have a credit score above 680, and most financial institutions and lenders have this criterion.
The score required to qualify for a loan varies from lender to lender, but most accept signing your mortgage if your score is above 680.
Banks Offering Mortgages
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Qualifying for a mortgage is not an easy task and might take time to get approved.
● When you are looking for a mortgage, you must research well and try to look out for multiple lenders so you can have several options to choose from and select the best one that suits your financial needs.
● Different mortgage lenders and financial institutions will offer different interest rates and loan amounts.
People think their credit score will decrease if they apply for different loans because every financial institution will run a check through your credit rating.
However, this is not true as your credit score doesn’t decrease through multiple inquiries because multiple inquiries in a short period will not hurt your credit rating.
● You must take advantage of this situation and apply for multiple mortgages so you have multiple offers at your table and you can choose the best one.
Broker vs. Financial Institution
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Navigating your mortgage journey might be complex if you stick with your bank or financial institution.
● A financial institution can only offer you a single product whose terms you cannot negotiate.
Having a mortgage broker by your side is beneficial because he can search the market and bring multiple offers for you.
● A mortgage broker runs a check on your credit rating and brings multiple mortgage products to your table.
You can choose whichever product you like that suits your financial needs and goals.
From paperwork to negotiating, a mortgage broker brings you the best deals that have a better interest rate and loan amount than a bank.
Credit Rating to Buy a House in Canada
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In Canada, different provinces require different credit scores to be eligible for buying a house.
● The minimum credit score required to buy a house in different provinces is proportional to the value of that house.
● You must have a high credit score and the mortgage amount will be higher if you are trying to buy an expensive house.
You are required to pay an expensive mortgage because the risk associated with the lender when you are purchasing an expensive home is much more than a low-valued house.
British Columbia, Quebec, Ontario, and Alberta require a minimum 680 rating for mortgage approval.
There are chances that you can qualify for a mortgage at a credit rating of 600 but the chances are low.
The other factors that influence the course of your mortgage application are:
- Income
- Required Mortgage Amount
Mortgage Approval with a Credit Score Below 600
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The chances of you getting a mortgage in Canada if your credit score is below 600 is drastically low.
Here are some steps you can take to increase your chances:
- Mortgage Broker
If you are unsuccessful in getting a mortgage from a financial institution, you can hire a mortgage broker to increase your chances of getting approved.
2. Down Payment Factor
One step that people can take is paying a huge down payment which can sometimes open the path of getting a mortgage.
Conclusion
Understanding the critical role of a credit score in the mortgage approval process is fundamental for anyone aspiring to own a home. This article has shed light on the minimum credit score required for securing a mortgage, emphasizing the pivotal importance of this financial metric. A good credit score serves as a gateway, enabling individuals to access favorable mortgage terms and interest rates, while a lower score might pose challenges or limit available options.
