Friday, September 20, 2024 / by Teresa Pileggi
What Average Credit Score Do You Need To Buy A House?
What Average Credit Score Do You Need To Buy A House?
If you are planning to buy a house in Canada, chances are you will need a mortgage unless you take the cash route. In most cases, new homebuyers focus on saving enough for a down payment, earnest money, closing costs, and other expenses that come with a home purchase.
Only a few consider the least important aspect: their credit scores.
A credit score is a crucial factor that most lenders check before approving you for any mortgage. Besides ensuring you can pay back your loan comfortably, a good credit score also means you can cover other homeownership costs without falling into bad debts. So, what average credit score do you need to buy a house?
Minimum Credit Score to Buy a House in Canada
The minimum credit score you need to acquire your first property in Canada is anything above 650.
With this score, most lenders consider you a low-risk borrower and can approve you for a mortgage with good repayment terms and interest rates.
However, the average credit score can go as high as 760 depending on the following factors.
1. Average Credit Score by Mortgage Type
Every lender has their minimum credit requirements when approving mortgages. Some lenders may not impose strict credit qualifications if you have enough down payment and cash reserves. However, others have set their minimum credit scores higher to ensure borrowers have enough backup to pay for their loans. Here is a look at three primary mortgage types and their minimum credit requirements.
? Conventional mortgages. Conventional mortgages are those that require a minimum down payment of 20%. These loans need a minimum credit of between 620 and 680 depending on the lender.
? Canada Mortgage and Housing Corporation (CMHC)- insured mortgages. CMHC- insured loans are high-ratio mortgages where the homebuyer pays a down payment of as low as 5%. Such mortgages require a credit score of at least 600, although borrowers need default mortgage insurance to qualify.
? Jumbo mortgages. Jumbo loans are non-conforming mortgages used to finance expensive properties that are too high for conventional mortgages. The minimum credit score for jumbo loans primarily depends on the lender since they are considered high-risk loans. However, the average credit score for jumbo mortgages in Canada is 700 and can go as high as 760.
2. Average Credit Score by City
The average credit score you need to buy a house in Canada also varies depending on the province or city you intend to buy a property in. For instance, while you may need a credit score of 650 to buy a house in Canada, some cities may require a higher credit score of above 700 to qualify you for a mortgage.
Here are a few cities in Canada with their minimum credit scores:
? Toronto – 696
? Markham – 720
? Vancouver – 705
? Hamilton – 660
? Moncton – 640
? Regina – 659
? Montreal – 687
? Edmonton - 649
3. Average Credit Score by Age
Your age can also determine the minimum credit score you need to purchase a house. For instance, the older age group has a higher credit score of above 750 while the younger age group has a lower credit score of 520. When it comes to mortgage and property acquisition, older borrowers can have better mortgage terms and lower interest rates than younger borrowers. Several reasons explain the difference in mortgage approval based on the age, including:
? Older homebuyers have better financial decisions and payment behaviors than younger homebuyers.
? Older homebuyers have a more robust credit history than younger homebuyers. That is because older people have spent decades improving their creditworthiness by paying debts and correcting credit errors.
? Older homebuyers may have higher incomes to manage their bills and pay off mortgages.
How to Improve Your Credit Rate Before Buying a House
Your credit score is vital in the mortgage value and rates you qualify for. If you have a poor credit score (below 560), consider improving it before you start home hunting.
You can improve your creditworthiness by addressing credit issues. These include:
1. Correcting any errors on your credit report
Start by getting a copy of your credit report from Equifax and TransUnion and checking for inaccurate or missing information. If you notice any errors, file a dispute with the credit agency and work on correcting them.
2. Reducing your credit utilization ratio by paying down your credit card balances. The credit utilization ratio is the debt amount compared to the available credit. Most lenders want a credit utilization ratio of less than 30%. You can achieve this by paying down your credit card debts to increase the available credit. However, do not close your credit cards after paying the debt, as you will lose your credit history.
3. Limiting new credit
Avoid opening new credit lines when planning to buy a house since it can affect your credit history and lower your creditworthiness. When you open new credit lines and take loans, you will likely increase your credit utilization ratio and lower your average score. Therefore, it is wise to stick to your current credit lines and only open new credit accounts after securing your first mortgage.
The Bottom Line
Maintaining a higher credit score is crucial as you plan to acquire your first home in Canada. That is because the higher the credit score, the better the mortgage terms are and the lower the interest rates you can get. However, you can still buy a house with a good or fair credit score. Therefore, if you plan to buy a house this year, you can start by checking your credit score with any credit reporting agency and seeking mortgage options that fit your creditworthiness.
If you are planning to buy a house in Canada, chances are you will need a mortgage unless you take the cash route. In most cases, new homebuyers focus on saving enough for a down payment, earnest money, closing costs, and other expenses that come with a home purchase.
Only a few consider the least important aspect: their credit scores.
A credit score is a crucial factor that most lenders check before approving you for any mortgage. Besides ensuring you can pay back your loan comfortably, a good credit score also means you can cover other homeownership costs without falling into bad debts. So, what average credit score do you need to buy a house?
Minimum Credit Score to Buy a House in Canada
The minimum credit score you need to acquire your first property in Canada is anything above 650.
With this score, most lenders consider you a low-risk borrower and can approve you for a mortgage with good repayment terms and interest rates.
However, the average credit score can go as high as 760 depending on the following factors.
1. Average Credit Score by Mortgage Type
Every lender has their minimum credit requirements when approving mortgages. Some lenders may not impose strict credit qualifications if you have enough down payment and cash reserves. However, others have set their minimum credit scores higher to ensure borrowers have enough backup to pay for their loans. Here is a look at three primary mortgage types and their minimum credit requirements.
? Conventional mortgages. Conventional mortgages are those that require a minimum down payment of 20%. These loans need a minimum credit of between 620 and 680 depending on the lender.
? Canada Mortgage and Housing Corporation (CMHC)- insured mortgages. CMHC- insured loans are high-ratio mortgages where the homebuyer pays a down payment of as low as 5%. Such mortgages require a credit score of at least 600, although borrowers need default mortgage insurance to qualify.
? Jumbo mortgages. Jumbo loans are non-conforming mortgages used to finance expensive properties that are too high for conventional mortgages. The minimum credit score for jumbo loans primarily depends on the lender since they are considered high-risk loans. However, the average credit score for jumbo mortgages in Canada is 700 and can go as high as 760.
2. Average Credit Score by City
The average credit score you need to buy a house in Canada also varies depending on the province or city you intend to buy a property in. For instance, while you may need a credit score of 650 to buy a house in Canada, some cities may require a higher credit score of above 700 to qualify you for a mortgage.
Here are a few cities in Canada with their minimum credit scores:
? Toronto – 696
? Markham – 720
? Vancouver – 705
? Hamilton – 660
? Moncton – 640
? Regina – 659
? Montreal – 687
? Edmonton - 649
3. Average Credit Score by Age
Your age can also determine the minimum credit score you need to purchase a house. For instance, the older age group has a higher credit score of above 750 while the younger age group has a lower credit score of 520. When it comes to mortgage and property acquisition, older borrowers can have better mortgage terms and lower interest rates than younger borrowers. Several reasons explain the difference in mortgage approval based on the age, including:
? Older homebuyers have better financial decisions and payment behaviors than younger homebuyers.
? Older homebuyers have a more robust credit history than younger homebuyers. That is because older people have spent decades improving their creditworthiness by paying debts and correcting credit errors.
? Older homebuyers may have higher incomes to manage their bills and pay off mortgages.
How to Improve Your Credit Rate Before Buying a House
Your credit score is vital in the mortgage value and rates you qualify for. If you have a poor credit score (below 560), consider improving it before you start home hunting.
You can improve your creditworthiness by addressing credit issues. These include:
1. Correcting any errors on your credit report
Start by getting a copy of your credit report from Equifax and TransUnion and checking for inaccurate or missing information. If you notice any errors, file a dispute with the credit agency and work on correcting them.
2. Reducing your credit utilization ratio by paying down your credit card balances. The credit utilization ratio is the debt amount compared to the available credit. Most lenders want a credit utilization ratio of less than 30%. You can achieve this by paying down your credit card debts to increase the available credit. However, do not close your credit cards after paying the debt, as you will lose your credit history.
3. Limiting new credit
Avoid opening new credit lines when planning to buy a house since it can affect your credit history and lower your creditworthiness. When you open new credit lines and take loans, you will likely increase your credit utilization ratio and lower your average score. Therefore, it is wise to stick to your current credit lines and only open new credit accounts after securing your first mortgage.
The Bottom Line
Maintaining a higher credit score is crucial as you plan to acquire your first home in Canada. That is because the higher the credit score, the better the mortgage terms are and the lower the interest rates you can get. However, you can still buy a house with a good or fair credit score. Therefore, if you plan to buy a house this year, you can start by checking your credit score with any credit reporting agency and seeking mortgage options that fit your creditworthiness.
