It’s no secret that your credit score has been one of the most crucial determining factors in not only whether you qualify for a mortgage in the first place but also dramatically influence the rates at terms you will be offered.
Everyone has suffered panic attacks and cold sweats when they start to angst over whether their credit score is good enough to land them that dream mortgage on their dream home.
If you are one of those people, we have some bad news for you. Your credit score is now more important than ever when it comes to whether you qualify for a mortgage and what kind of mortgage that will be.
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You must be asking yourself that question at this very moment. The answer is a fairly simple one. We are all too well aware of the current housing bubble that has seen prices rise to record highs without any respite.
The government, through the OSFI and the Bank of Canada, has tried to address this by cutting the demand, which in simple economic terms should cause prices to fall. From from it, this policy seems to have had the opposite effect for various reasons. They also argue in favour of this approach to prevent defaulters and risky borrowers from defaulting on their loans and protect them as well as banks and other financial institutions.
The main avenue they chose to achieve this with is to make it increasingly difficult to qualify for a mortgage. With housing values already sky-high, a mortgage has become the only way for almost 90% of the Canadians to buy a home. Without this, many will be forced to stall their ambitions on buying a home and rent instead.
The simplest way is to make it harder to qualify for a mortgage is to raise the credit score as well as the benchmarks that borrowers need to reach.
So, where does that leave me?
Since these new regulations and minimum requirements where adopted and prescribed to banks and other regulated financial institutions, they have managed to change how they qualify borrowers in two ways:
- Changing the interest rates they set for different credit score ranges
- Made their minimum qualifying credit scores higher.
This means that not only does this lead to less people qualifying for mortgages right from the get-go but it also means that those that do qualify will get less attractive interest rates and terms. Combined with the shorter amortization periods and the new “stress test”, this makes it much more difficult for most prospective borrowers.
A credit score of 600 is now the cut-off credit score. It will be nigh impossible for anyone to qualify for a mortgage with this credit score no matter what their other circumstances are like.
Even with a credit score of 640, borrowers will receive much less attractive rates than those that are above 700. 740 is still regarded as a near-perfect credit score that will get you the best rates.
Let’s not forget that if you can’t afford the minimum 20% down payment to avoid having to pay mortgage insurance as well, that your mortgage insurance will also go up in cost.