Renters may think that they are finally in the position to buy their first home, looking forward to enjoying many benefits with their first home, including the ability to establish equity and make upgrades to a property to better meet specific needs. Families often appreciate the ability to have pets, entertain in their backyard and spend quality time as they see fit in and around their property.
However, the path to homeownership may not be easy. It is important to be financially ready to buy. Even with a sizable down payment, the majority of potential buyers will need to take out a home mortgage loan from a reputable lender. Credit scores and credit history are important factors influencing the approval process. A good credit score may also be useful for those considering going through the pre-approval process.
Learn more about credit scores and credit history, and what will be necessary to do when it comes time to buy a home and take out a mortgage loan today.
Looking for Applicants with a Good Credit Score
For lenders, credit score shows a lender that an applicant can make required payments. Those with an excellent credit score have often taken out one or more previous loans, and have made regular and timely payments on credit cards and more. There is a credit history that belies the credit score number that allows lenders to feel a certain level of security in approving an applicant for a loan. Individuals with poor credit scores have been more likely to have missed payments, accrued additional fees on loan or defaulted on a loan. Such applicants pose a higher risk for lenders.
Those with good or great credit will often get better terms and find it easier to be approved for a mortgage loan. In addition, getting instant approval from a lender can allow one to start the process of looking for a home. Credit scores and credit history are only two factors that will influence a lender. Employment history, income to debt ratios and the amount of the down payment can also play into the picture created for a lender.
Getting a Loan with a Poor Credit Score
It is not impossible for an individual with a poor credit score to be approved. However, they may have to provide a larger down payment or be making efforts to improve their score. They may also need to be willing to pay more to a lender over the lifetime of a loan.
Such people can get started on improving their credit score. After learning their about their credit score, they can report inaccuracies, work on paying down debt and be consistent with making payments. Over time, they can see an improvement in their credit score which can make it easier to qualify for a conventional loan.
Finding Out More About Your Credit Score
Understand where the state of one's credit before applying for a mortgage loan. Ordering a credit report will not impact one's credit score. Easily request a credit report over the phone and by mail or fax from Equifax Canada and TransUnion Canada. Review both reports as they may contain different information.
Those working on improving their credit score should regularly monitor their payment history as it is the single most influential factor of one's credit. Making payments on time, ensuring at least the minimum payment is always made, never skipping payments, and contacting a lender if it is not possible to pay a bill are a few ways to start making progress when it comes to payment history.
Pay down outstanding debt. Lenders want to see a good debt to income ratio from an applicant. Therefore, do not exceed the credit limit given and keep use under 35 per cent. Avoid attempting to open new lines of credit before applying for a home mortgage loan. In the short term, opening new lines of credit may take off a few points from one's credit score. This can make a difference when hoping to fall into a lower risk category with a lender.
Planning Ahead to Buy a Home
It can be useful to get started on improving one's credit before getting serious about taking out a mortgage loan. Potential Bonnie Doon new home owners need to do more than be able to put down a down payment on a home. Good credit scores can help increase the chance of getting approved for a home loan with better terms and conditions. Speak with a qualified lender to learn more about how credit impacts the home loan approval process today.
By Justin Havre