Buying your first home requires more than just your 5% minimum down payment. You need to be considered as a low-risk to potential lenders. This means that your credit needs to be in great shape, but if it isn’t, that doesn’t mean your home purchasing days are over. You can build your credit and put yourself into good standing so your lender is happy to loan you the hundreds of thousands of dollars you’ll need for your mortgage. Here’s how.
1. Start by reviewing your credit history and score
You can obtain this with Equifax or TransUnion. Have a look over your credit history and ensure that there are no discrepancies – items attached to your credit that are not yours. You can dispute any inaccuracies with the lender or let the credit company do it for you. They’ll do a free investigation after your provide them details of your claim. You want your score to be over 700 in order to have the best chance of securing a good mortgage rate.
2. Get some credit if you don’t have any
If your score is lower than you’d hoped or you don’t really have a good amount of credit, you’ll want to start with getting some credit. In order to build your score, you need two sources of credit, where you are making regular payments. This could include a credit card, vehicle payment or other type of weekly/monthly payment. Thirty five percent of your credit score is valued by your payment history.
3. Pay off your credit if you have too much
Here’s the tricky part: while you need to show a history of credit, you also don’t want to be bogged down with too much credit. What is too much? Your total debt service ratio should be less than 40% of your annual income. This will include:
· Housing expenses (gross debt service ratio), which equals mortgage, property taxes, heating costs and 50% of condo fees
· Credit card interest
· Car payments
· Loan expenses
If your TDS is too high, you should do what you can to pay down some of your debt. When it comes to your credit cards and lines of credit, keep your balance much lower than the available credit.
4. Make your payments on time
Missing payments or late payments will have a direct impact on your credit score.
5. Don’t make credit applications
When you are buying a car or looking for a credit card, every time you put in a credit application, it can lower your score.
Buying your first Collingwood home shouldn’t be too difficult if you follow these tips to getting your credit rating near perfect!