It may finally be time to look into purchasing a home. Canadian residents become homeowners in order to avoid paying increasing rent and to be able to make upgrades on a property to suit their lifestyle. Those with active children or pets often appreciate the privacy afforded them by having a fenced in backyard. These are only a few of the advantages of homeownership.
There are some considerations required before buying a home. Potential buyers who need a home loan mortgage may need to review a number of factors prior to going to a lender. Pre-approval on a home loan can help an applicant looking to snap up a home in competitive markets such as Vancouver, Toronto. What should first-time home buyers know about credit score and credit history and how they impact the lender's decision to approve one for a home mortgage?
Understand about credit scores and how they are an important factor for home mortgage loan lenders today.
The Credit Score Overview
A credit score is more than an abstract number. Those with higher credit scores are more likely to be approved by a lender on a home loan, in addition to scoring better rates. However, the number itself is based upon numerous aspects of an individual's credit history. Areas that are considered when determining a credit score include length of credit history, timely payments and amount of debt. Late payments, defaulting on a loan or a previous bankruptcies can significantly lower one's credit score.
A lender wants to provide home loans to those who have a history of regular payments and have little likelihood of defaulting on a loan. This does not mean that those who have had a poor credit history in the past cannot get a home mortgage loan. Many individuals have successfully gone through the process of improving their credit score in order to be approved for a home mortgage loan.
Lenders Love Excellent Credit Scores
Canadians applicants who possess good or excellent credit scores are in a better position when applying for a mortgage loan. Such individuals may benefit from instant approvals from a lender. It can be useful to know more about the three private agencies generating credit scores. Experian, Tran Union and Equifax are the agencies doing so in Canada. For those looking into their credit score for the first time, know that this score may also be referred to as a FICO score.
As credit score (or FICO score) is important to lenders, understand how to get into a better position to apply for a home mortgage loan. Credit utilization and debt are part of one's credit history. It helps applicants to refrain from closing credit cards, applying for new lines of credit or accruing additional debt before applying. A low debt to income ratio is desired from applicants as it demonstrates that there is sufficient income to pay off new loans. When it comes to credit utilization, it is beneficial to use only a fraction of the credit afforded to an individual on credit cards.
Improving Credit Score
Prospective buyers can take action to increase their credit score and be in a better position to get approved for a home loan. Diligence and time may be needed to begin seeing significant credit score improvement. One can begin by requesting their credit score report and addressing any inaccuracies. After doing so, paying down debt and making timely payments can be used to improve one's credit score.
Eventually, an individual may be put into a lower risk category. It may be useful to speak with a lender before applying to determine if there are any issues and which efforts may be most beneficial to improving one's credit score depending upon personal situation. It is worthwhile to get pre-approved prior to working with home sellers and their agents.
Affording a Home
An individual who wants to be approved may have to work on additional factors. It may be necessary to improve one's income situation, have a longer history of consistent employment or pay down debt before applying for a home mortgage loan from a Canadian lender. Employment history and sufficient income are factors that may impact one's credit score but would also help one afford to buy, maintain and potentially make repairs or improvements on a property.
Know More About Your Credit Score and Credit History
Potential buyers are at an advantage when they work to improve their scores and get pre-approved for a conventional home mortgage loan on a southwest Edmonton home. Be more likely to be approved for a home mortgage loan when making an offer on a home with a good or excellent credit score.
By Justin Havre