There have been many changes to Canadian mortgage applications over the past few years, which include credit score requirements.
A credit score determines a person's creditworthiness as it reflects certain aspects of a person's credit character including repayment history, credit management and loan utilization, for example. With the changes to mortgage guidelines, including the implementation of the Mortgage Stress Test, lenders are now reviewing credit more closely. In fact, they are setting minimum score requirements for both purchases and refinances.
If a borrower is purchasing and has less than a 20 per cent down payment, their mortgage must be insured through one of the three high-risk insurance companies. Genworth and Canada Mortgage and Housing Corporation, for example, require a borrower to have a minimum credit score of at least 600. If a score is below 600, the mortgage application will likely be declined. Canadian mortgage law requires that any purchase with less than a 20 per cent down payment be insured; therefore, high ratio insurance policies do play an essential role in the mortgage approval process in addition to the lending guidelines and credit score requirements.
It's also important to consider that lenders will set their own guidelines regardless of what high-ratio mortgage insurance companies accept as "insurable."
Some lenders can also make exceptions to a person's credit by considering the strength of the mortgage application, such as income, employment tenure, down payment, and so on.
Refinancing usually requires a greater minimum credit score than that required when purchasing. The reason for harsher policies with respect to refinancing is due to mitigating overall risk and also that existing mortgage borrowers are looking to take on more mortgage debt in addition to their original loan amount.
Therefore, while some lenders such as major banks will accept minimum credit score of 650, other lenders such as Mortgage Finance Companies will only accept 680 or higher. Of course, there are exceptions to the rule, which is why working with a mortgage expert can help you in the approval process, especially if your score is below these requirements.
Additionally, alternative lenders accept scores of 480 or more, which opens up many opportunities for existing homeowners to obtain the financing they require, especially in situations where they are attempting to consolidate debt or access equity.
If you're looking to purchase or refinance, and have questions about your credit score, please do not hesitate to call or write.
Sarah A. Colucci
Mortgage Edge, Broker 10680
Direct: (647) 773-4849
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By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929