If you’re thinking about buying a house in Canada, it’s essential to consider your credit score.
Your credit score can play a significant role in determining whether or not you’re approved for a mortgage and the interest rate you’ll be offered.
Understanding what constitutes a good credit score and how to achieve it is crucial for securing the home of your dreams.
This article will explore the credit score requirements for buying a house in Canada, including the range of credit scores and the minimum score lenders require.
We’ll also cover how to check your credit score, as well as tips for improving your score if necessary.
With this information, you’ll be better equipped to make informed decisions when applying for a mortgage in Canada.
What Is a Good Credit Score for Buying a House in Canada?
A good credit score for buying a house in Canada is generally in the range of 640 or higher, but it’s best to aim for a score in the 680s or higher to increase your chances of getting approved for a mortgage with favourable terms.
Your credit score is a reflection of your creditworthiness and ability to pay back debts, and it can significantly impact your chances of getting approved for a mortgage.
Your credit score is affected by your payment history, credit utilization ratio, length of credit history, types of credit used, and recent credit inquiries.
Credit scores range from 300 to 900, and a credit score of 680 or higher is generally considered good for a mortgage.
However, the minimum credit score required by lenders may vary depending on the type of mortgage and other factors.
Credit Score Ranges for Mortgage in Canada
Knowing the different credit score ranges for a mortgage is important if you need to borrow money for your house purchase.
There is no standard formula for classifying credit scores for mortgages.
The below classifications are based on the clients we typically work with, and the lenders ultimately approve them for a mortgage with the best rate and terms.
Here are the five main credit score ranges we use Prime-Plus, Prime, Prime-Minus, Subprime, and Poor.
The Prime-Plus Credit Score Range (680 to 900)
You are an excellent candidate for a mortgage with a credit score.
A credit score in the 680 to 900 range puts you in a better position to secure one of the lowest mortgage rates in the market and favourable mortgage terms.
We called the 680-900 credit score range the Prime-Plus.
As a Prime-Plus mortgage candidate, you will have access to a wide range of mortgage programs, including new construction mortgages, purchase plus improvement, equity-takeout mortgages, and flexible down payment mortgages.
You will also be qualified for a mortgage at higher debt-service ratios of 39% for GDS and 44% for TDS.
This makes it easier to qualify for a higher mortgage loan amount or a mortgage with a lower income than those with credit scores in the below-prime range.
The Prime Credit Score Range (640 to 679)
You are a good candidate for prime mortgage loans. Some lenders may still offer you their lowest mortgage rates.
However, compared to someone with a credit score in the Prime-Plus (680-900) range, you will be evaluated at a lower qualification ratio of 35% for GDS and 42% for TDS.
The table provides an example of the maximum proportion of your monthly income that can be used for mortgage payments and the maximum mortgage amount you can qualify for based on two different credit score ranges.
Assuming you earn $75,000 per year if your credit score falls between 640-679, the maximum proportion of your monthly income that can be used for mortgage payments is $2,187.50. With this monthly payment, you would qualify for a maximum mortgage amount of $365,041.02.
If your credit score falls between 680-900, the maximum proportion of your monthly income that can be used for mortgage payments is $2,437.50.
With this monthly payment, you would qualify for a maximum mortgage of $406,760.00.
|Credit Score Range||640-679||680-900|
|Max Proportion Of Monthly Income use For Mortgage||$2,187.50||$2,437.50|
|Max Qualifiable Mortgage Amount||$365,041.02||$406,760.00|
It’s important to note that these numbers are just an example and that other factors, such as debt, income stability, and other financial obligations, can also impact the mortgage amount you qualify for.
Prime-minus Credit Score Range (600 to 639)
If your credit score falls between 600 to 639, it’s in a gray area or borderline between prime and subprime mortgages.
Not all lenders will consider you for a prime mortgage loan in this range.
You may need to look beyond traditional banks and credit unions for approval, as they have strict credit score qualification criteria for prime mortgage products.
However, there are still options available.
Many monoline lenders such as MCAP, Equitable Bank, B2B Bank, First National, Merix Financial, and Radius Financial offer prime mortgages for credit scores in the 600 to 639 range.
While the mortgage rate might be slightly higher than what you get with a credit score in the higher ranges, it will still be lower than what you get for a subprime mortgage or a private mortgage loan.
Subprime Credit Score Range (500 to 599)
Your credit score is low, but it is still mortgage-worthy – if you can afford it. You are an excellent candidate for an alternative, subprime or bad credit mortgage loan.
Alternative or subprime mortgages are special programs for individuals with low credit scores.
The main characteristics of these mortgages are their higher down payment requirements and high cost of borrowing.
The interest rates for these types of mortgages are generally higher than those offered to borrowers with credit scores in the prime mortgage range.
However, it is easy to qualify for a mortgage range because of their high qualification ratios of up to 50% for GDS and TDS and flexible income criteria.
Poor Credit Score Range (Below 500)
Credit scores below 500 are outside the appetite of institutional lenders.
You may qualify for private mortgage solutions. However, based on other aspects of your application, a private lender may still hesitate to offer you a mortgage.
It’s important to note that private mortgages come with a high initial upfront cost of approximately 3% to 8% for the mortgage origination and a 10% to 14% annual mortgage interest rate.
To improve your credit score, it’s advisable to speak with a Consumer Credit Specialist.
Some steps you can take to improve your credit score include cutting down on your credit card use, avoiding new credit product applications, paying all your debts on time, and reducing your loan balances.
Improving your credit score to a prime mortgage level may take some time, but it is possible with focus and determination.
Credit score for Mortgage Grid
|Credit Score Range||680 – 900||640 to 677||600 to 639||500 to 599||Below 500|
How to Check Your Credit Score in Canada
Checking your credit score can help you identify any issues or errors that need to be addressed.
By staying on top of your credit score, you can take steps to improve it over time and increase your chances of getting approved for a mortgage with favourable terms.
You can check your credit score for free once a year with either Equifax or TransUnion, the two main credit reporting agencies.
These agencies also offer credit monitoring services for a fee, which you can subscribe to.
These services can be useful for keeping track of your credit score and identifying any changes or issues that need to be addressed.
You can also check your credit score in Canada for free by using online platforms like Borrowell, Credit Karma, and Ratehub.
These platforms allow you to access your credit score quickly and easily without having to go through the credit reporting agencies directly.
These platforms typically use soft credit inquiries that don’t impact your score.
While these platforms can be a convenient way to check your credit score, they may not provide the same level of detail as the credit reporting agencies.
Additionally, it’s important to note that these platforms use your information to market and sell loans and other financial services.
Therefore, reviewing their privacy policies and understanding how your information will be used before providing any sensitive data is crucial.
Quick Tips to Improve the Credit Score
If you want to improve your credit score to move up the credit score ladder, here are some quick tips to help you.
- Reviewing your credit report. If you want to stay on top of the situation at all times, check your credit report at least once a year. That way, you are not blindsided by potential issues. If you see issues in the credit report, getting the credit reporting agency to fix them is vital.
- Paying all your debts on time. Once again, it cannot be stressed enough that paying your debts on time will be the number-one reason your credit score improves. It is always best to set up a plan of attack when first applying for a loan. That way, you have a realistic view of how you intend to pay off your debt.
- Not closing off accounts. Even if it happens to be a mistake, closing accounts will hurt your credit score in the long run. As much as possible, avoid opening accounts that you feel will close within a few years.
- Staying well below your credit limit. As tempting as it might be to use your credit card for all it is worth, there are many risks to purchasing close to the limit. If you intend to use more of your credit card than recommended, paying off your debt before using your credit line is best.
- Applying for credit as sparingly as possible. The less you attempt to apply for credit, the less risk you pose to lenders. Your credit behaviour can go a long way to improving your overall credit score, which will open up avenues for better loans in the future.
In conclusion, understanding what a good credit score is and how to achieve it is essential for buying a house in Canada.
Your credit score can significantly impact your chances of getting approved for a mortgage and the interest rate you’ll be offered.
To increase your chances of getting approved for a mortgage with favourable terms, aim for a credit score in the 640s or higher.
Remember to check your credit score regularly, review your credit report for errors, and take steps to improve your creditworthiness over time.
Whether you choose to check your credit score through credit reporting agencies or online platforms, be sure to review their terms and conditions carefully to protect your personal information.
By staying on top of your credit score and taking proactive measures, you can be well on your way to securing the home of your dreams in Canada.