Are you confused about the credit factors lenders use when reviewing credit applications? There are 3 major credit components lenders buyers should know before buying your most expensive investment.
Stick to the end of this blog where I will share when is the best time to buy and why.
In our last blog, we discussed the 2 kinds of DTI, what it is, why it’s important to lenders, and what is acceptable for lenders. If you haven’t read that blog, I recommend you go read that first, then come back to this one
#1 - Credit Scores
There are 2 major credit bureau agencies for Canada, Equifax and TransUnion. Both credit reporting agencies use score to communicate information about you to potential lenders. A good credit score is typically between 670 and 739. A very good credit score is between 740 and 799, and an excellent credit score is 800 and above. Generally, the higher the more creditworthy you are.
The lender will use the scores as a guide but they will look at the overall credit report when making their decision. Reason being, the credit scores don’t give a full picture that the lender needs.
#2 - Payment History
The second factor lenders will look into is your payment history. Your payment history shows a history of all your payments, the good, bad and ugly of all your debts, car loans, credit cards, student loans, line of credit…everything. Payment history accounts for 35% of your credit score. The highest of all other factors on the credit report. Making it super important. Lenders prefer to lend money to people that have a long history showing good payments. The fewer late payments on your report, the more appealing you look to the lender.
#3 - Assets
How much do you have in cash and what can be converted into cash. In the event you were to lose your job, having access to cash may be necessary. Assess will provide you with potential cash flow for emergencies. Stocks, bonds held in a non-retirement brokerage account, cash in savings or money market accounts and other assets like collectibles or property could all be considered by the lender. The more assets you have the better.
There you have it. You now know what mortgage lenders look at when reviewing applications. You might also be interested in learning other components that are important for YOU to consider before buying. Check out my next video where I will share some other points you need to consider before buying. You will learn the 3 elements that every buyer should know before buying
If you are thinking about buying a house in the near future and have questions on the process, how to get started, or want to position yourself to buy in the future we’ve been more than happy to help you reach your goals, contact us anytime. And remember building generation wealth is for everyone
