How Your Credit Score Will Impact Your Home Purchase
Purchasing your dream home can be a reality as long as you can avoid nightmarish financial scenarios that can prevent you from taking this huge step. Along that proverbial stairway to homeownership, a good credit score can help make such a climb easier to manage. Lenders are more likely to approve your ambition towards buying real estate when your credit score is high. Here’s a guide that outlines what a credit score is and its impact on your home purchase.
Credit Scores Reflect Your Financial Health
Credit scores, which usually range between 300 and 900, show how well you manage your credit or how timely you pay your creditors. A lower credit score will likely deem you high-risk in the minds of lenders when seeking approval for a mortgage, exposing you to potentially higher mortgage rates or preventing you from being approved at all. These scores are based on information sent to credit bureaus by financial institutions that issue credit cards.
A credit score of around 600 is deemed acceptable to lenders, making you low-risk for them. Scores of 750 or higher are regarded as excellent, making you an ideal candidate for a mortgage. Several factors can influence your credit score, such as missed or late payments, credit history, new credit requests, or how much debt you have as a percentage of your available credit. A Toronto real estate agent will feel better about your quest for buying real estate if your credit is in good standing.
How Does a Credit Score Affect Your Mortgage Application?
If you don’t want lenders judging how you handle your money, a good credit score offers suitable evidence to keep them off your case. Some lenders have more leniency than others, such as TD Bank, whose mortgage rate is at 3.49% if your score is between 600 and 900. On the contrary, private lenders offer mortgage rates up to 18% if your score is less than 600. Yikes.
If your credit score isn’t great, you can get away with it if you make a high income with minimal debt to your name. The loan amount required and amortization requested will also affect the credit score required to qualify for mortgage approval. The higher the loan amount is, the higher the qualifying score will be. Qualifying for a loan requires proof to your lenders of your capability to afford mortgage payments should interest rates rise (they will, so brace for that), making the process more stressful. Therefore, don’t compound that stress by making unnecessary glamorous purchases to put your score at risk; those brand-name clothes or the SUV you’ve been picturing yourself riding in for some time can wait.
Whether you’re buying real estate or selling real estate to a prospective homeowner, a credit score is an important indicator of financial feasibility to consider, one that can make or break a deal. By keeping up a good score, your goal of moving your family into that dream home will be realized. If you need a Toronto real estate agent to help you assess your flexibility as you make such a life-altering decision, reach out to Will Doyle today.
