What Is the Minimum Credit Score for a Mortgage in Toronto?

Buying stuff is a pleasant experience; some people even go shopping to calm themselves down. But what if the size of your purchase is as big as a house? Sure, it’s still pretty exciting, but it can also be overwhelming to put your financial strength together to qualify for a mortgage. So, how can you afford a home with your financial status quo? Do you have the minimum credit score to qualify for a mortgage? Let’s find out.

The Minimum Credit Score for a Mortgage in Toronto

The minimum credit score required for a mortgage in Toronto ranges from 620 to 680. The exact required credit score depends on the type of mortgage you can get. If your down payment amounts to 20% (or more) of the total home price, you can get an uninsured, aka, conventional mortgage. For that, you would need at least 680 credit scores. The upside is that with conventional mortgages, you can forgo the default insurance premium.

On the other hand, if your down payment is less than 20% of the purchase price, a minimum 620 credit score will do, but in this case, your lender only offers an insured (or high-ratio) mortgage so that they don’t incur losses if you default your mortgage payment. The trade-off here is a lower credit score for higher installments. Of course, the minimum credit also varies based on the lender.

How to Improve Your Credit Score?

Your credit score directly has to do with your mortgage eligibility. A high credit score assures the lender that you can repay the mortgage promptly, while a low credit score signals that you are likely to default on your payments. Obviously, lenders are not willing to lend a huge amount of money to someone who can’t pay back, and if they do, there will be a considerable interest rate. The following solutions can improve your credit score to qualify for a mortgage.

• Timely payments: pay your credit card bills, loans, and utilities to build up a neat and acceptable payment history.
• Reduce credit card balances: use less than 35% of your available credit.
• Pay existing debts: paying down your debts improves your debt-to-income ratio, leading to better mortgage qualification.
• Diversify your credit mix: you can use different types of credit types, such as loans and credit cards, to boost your credit score.
• Avoid opening new credit accounts: getting a new credit card or loan can temporarily reduce your credit score. So, open new accounts only when necessary. It’s worth mentioning that the longevity of your credit accounts can boost your score depending on your records.

Don’t have a Minimum Credit Score for a Mortgage? Do This

Mortgage lenders check your financial stability using data obtained from two main credit bureaus in Canada, Equifax and TransUnion. If your financial records aren’t adding up, getting a mortgage won’t be a straightforward process. However, there are still ways to qualify for the mortgage.

• Increase down payment: the size of the down payment can affect your mortgage eligibility. If you have the funds, you can make a larger down payment than what the lender has required to show you have no problem repaying the mortgage. The larger the down payment, the lighter and more manageable the mortgage installments.
• Find a co-signer: if your financial records don’t look good, you can ask a trusted friend or family member with good credit to sign the mortgage forms as a co-borrower. This makes you more qualified to get a mortgage.
• Use alternative lenders’ facilities: B Lenders have higher interest rates and require a larger down payment (maximum 20% of property value). However, you might find their conditions more agreeable with lower credits.
• Use governmental housing programs: The Canadian government offers some incentives and programs to facilitate buying a house for first-time home buyers. Click on grants and incentives for first-time home buyers to see if you’re eligible.
• Build a strong financial profile: income stability is an important factor for lenders, and they require proof of income to grant you the mortgage. Also, try to settle your debts before applying for a mortgage to have a low debt-to-income ratio.

Toronto-Specific Tips You Could Use

Toronto is an expensive city to live in, and the average home price is about $1.3 million. So, you must pull up your socks to afford a home. You should have 20% of the home price to improve your mortgage conditions. If you find the whole process of buying a home too complicated or want everything to be in order, you can get help from a mortgage broker to push the process forward and find the best rates.

Also, try to attain a good credit score to qualify for insurance-free mortgages from prime lenders, such as the Royal Bank of Canada. Finally, regarding the high costs of housing in Toronto, you should follow Toronto real estate market trends to make an informed decision.

Curious about the minimum credit score for a mortgage in Ontario? Click to find the best mortgage rate in Ontario.

Frequently Asked Questions (FAQs)

What happens if my credit score is below 620?

With a lower credit score than 620, you don’t qualify for a mortgage from prime lenders, but you can consider a mortgage from alternative lenders for more flexibility or benefit from governmental incentives and programs for first-time home buyers.

Can I raise my credit score by 100 points in a month?

Increasing credit points by 100 is very challenging. Normally, it might take up to six months to raise your credit score by 100 points. You should use less than 30% of your available credit and check the credit report to monitor your account activity. Timely payment of bills and loans also goes a long way in boosting your credit score.

Why is my credit score going down when I pay on time?

Timely payment is very influential, but it’s only one of the factors. Using more than 35% of your credit or making new credit inquiries can lower your credit score despite paying your bills on time.          

What brings your credit score up the fastest?

Having a credit account with a strong history and paying off the debts can improve your credit score fast. Of course, as mentioned above, you should not use more than 35% of your available credit.

What's the lowest credit score to get a mortgage in Toronto?

The lowest credit score required for a mortgage depends on the lender, but even alternative lenders, who are more flexible when it comes to credit scores, do not accept credit scores lower than 500.

Conclusion

Buying a house is a pivotal point in anyone’s life, and as exhilarating as it is, you should make a plan to collect your resources and make the purchase. A mortgage can make you a homeowner, but you need to attain the required credit score to qualify for it. The minimum credit score for a mortgage in Canada ranges from 620 to 680, depending on the lender and mortgage type. If your score is lower than the minimum, you can take measures such as asking someone with good credit to co-sign the mortgage. Hopefully, the guidelines here will put you out of the dark when applying for a mortgage. Happy home buying!