One of the things that many home buyers ask themselves before buying a new home in Okotoks, is whether or not their credit score will affect their ability to get a mortgage, and if so, how? The answers to these questions can be complicated. Understanding the details of how a credit score works and how a credit score affects a home buyer's ability to get a mortgage can help a home buyer get a better interest rate and a better house when the time comes to buy.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

How Does Credit Score Affect Ability To Get A Mortgage?

Credit score is one of many factors that lenders take into consideration when a borrower applies for a home loan. Borrowers must usually meet a minimum credit score requirement in order to obtain a mortgage. If the borrower does not meet the minimum requirement, then they will have to improve their credit score or seek a mortgage from a less traditional lender, like a private mortgage lender.

What Is A Good Credit Score? What Is the Minimum?

Credit scores (using the FICO scoring system) can be as low as 300 and as high as 900. A score of 560 and below is considered poor, 560 to 660 is considered fair and 660 and above is good. Most lenders have a minimum requirement of around 580 to 620 in order to approve a buyer for a mortgage.

Credit scores are a compilation of many different factors like loan repayment habits, total amount of debt and number of open accounts. When a credit inquiry is made to approve a buyer for a loan, this causes a "tug" on the person's credit, which ultimately can affect the score. Anyone who applies for many loans in a small period of time may find that their credit suffers as a result.

What Other Factors Do Lenders Consider When Processing A Mortgage Application?

Credit score is not the only factor that lenders consider when they're in the process of approving a loan. There are many factors that lenders take into account.

Income

A buyer's income has a big effect on their ability to repay a mortgage. It's important for the buyer to be making enough money and for that buyer to have been in their job for a while before applying for a mortgage.

Job Stability

Mortgage lenders need to know that the person they loan money to will continue to have a job in the years to come. Borrowers who have a consistent work history and who are in jobs that are not limited in duration often have an easier time getting a mortgage when compared to people who do not. It's also easier for borrowers with a consistent salary or wage vs. being self-employed to obtain a mortgage with a poor credit score.

Down Payment

Mortgage lenders also look at how much money a borrower has to put down on a home. Borrowers who plan on putting down 20% or even 50% down on a home may find an easier time obtaining a mortgage than those putting down less. The more a borrower can put down on a home, the lower the loan amount - which lowers the possible default risk to the lender. There is also no need for Lender's Mortgage Insurance (LMI) if more than 20% is put down on the home.

How Can You Improve Your Credit Score?

Buyers who have a low credit score and who want to improve their credit may do so by paying down debt, making their payments on time and showing general responsibility for the number of open accounts they have. Improving a credit score takes time, especially if the score is very low. Buyers should also check their credit report for errors and have it corrected if errors are negatively impacting their score.

Contact a Lender Today

If you're a buyer who would like to get a loan and you're not sure how your credit score will affect your ability to get a home loan, talk to a reputable mortgage lender today. Your lender can give you information about how your credit score and work history affects your ability to get a mortgage.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.