It can seem like a real challenge trying to buy a home and get a mortgage these days, especially with home prices continuing to rise. On average, some homes are costing nearly $100k more than they did a year ago. This also means needing to fund more for a down payment. Lenders will also have a look at your credit history and your credit score. The higher your credit score, the more favourable the interest rates you will get. So, what credit score do you need to have in order to buy a home? Our top Alberta mortgage broker team has all that you need to know.
What Credit Score Qualifies As Good?
In Canada, your credit score ranges from 300 to 900, with 300 being the lowest and 900 the highest. Obviously, the higher your score is, the more likely you are to qualify for a mortgage loan and lower rates. A credit score of 660 is considered good and ranks you as less of a default risk.
As of the start of 2022, you need a minimum score of 640 to qualify for a mortgage, however, there are mortgages that you can qualify for with a score of 620. There are other factors, however, that are looked at that help determine whether you qualify and what mortgage products you qualify for. For instance, you may have a lower credit score but a low debt-to-income ratio and high income.
Impact of Credit Scores on Mortgages
Scores of 760 and higher are considered to be excellent and mean you can qualify much easier and will have access to much better rates.
Scores from 725 to 759 are considered to be very good, allowing you to qualify more easily and get lower rates.
Scores of 660 to 724 are considered good. You should still find it easy to qualify for a mortgage but you may not get the best rates that you would with a higher score.
Scores of 560 to 659 are considered fair. If your score is below 620, it may be harder for you to qualify for a mortgage and get good rates.
Scores of 300 to 559 are considered poor. This means you are seen as a high risk when it comes to borrowing. You will most likely be required to take out private mortgage insurance to get a mortgage and will have much higher interest rates.
Other Things That Lenders Will Consider
Remember, it's not just your credit score alone that lenders will be looking at. They will also review your credit history to see how well you are managing your current debts. Even if your credit score is over 600, having payment issues and debt problems could disqualify you from being able to get a mortgage. Lenders will review the following:
Employment record
Income
Current debts
General expenses
How much you are asking to borrow and for how long (amortization period)
You also have to pass the new mortgage stress test, which means you will need to prove that you can afford monthly repayments.
GDS Ratio
Another area that lenders will look at, in order to determine your monthly housing costs, is your gross debt service ratio. Your GDS looks at:
Your potential mortgage payments
Potential property tax costs
The estimated cost of utilities, like heating and electricity
If you are purchasing a condo, they will consider 50% of any condo fees
TDS Ratio
Your total debt service ratio is also closely looked at and consists of:
Lines of credit
Credit card payments
Any car payments
Any child support or alimony payments
Student loan payments
Any other debts
There are other key factors that have an impact on your credit score, which lenders will look at, including:
Whether you make your payments on time
Whether your credit utilization is over 35% of your overall available credit
How long your credit history is
Any new requests for credit
Your mix of credit types
If you are planning to buy a home in the near future, you should get your credit record from TransUnion or Equifax Canada. You can request a free copy once per year or pay a small fee to request it at any time.
If you have more questions about mortgage qualifications, please call our expert Alberta mortgage broker team today!