How High Should Your Credit Score Be To be Approved For A Mortgage? - Refresh Financial

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How High Should Your Credit Score Be To be Approved For A Mortgage?

 How High Should Your Credit Score Be To be Approved For A Mortgage

So, you’ve decided it’s time to own your own home. Good for you! Instead of paying someone else’s mortgage with your rent money, you’ll be paying your own and building your net worth as you do. Despite the high housing costs in Canada, becoming a homeowner is a great step forward! After saving up for a down payment, what comes next? What about your credit score? How high should your credit score be to be approved for a mortgage?

Your credit score is how potential lenders know what sort of borrower you are. Lower credit scores mean you might be declined for a mortgage, or be charged more in interest.

How high does your credit score need to be in order to qualify for a mortgage?

Where Your Credit Score Should Be

Because a mortgage is the largest amount of money that most Canadians will borrow in their lifetime, your credit score doesn’t have to be as high as you might suspect. In fact, most lenders in Canada will seriously consider your application if your credit score is 680 or above. That being said, there are other factors that come into play when it comes to a mortgage approval. For example, in June 2020, the CMHC announced a raise in the credit score needed to qualify for mortgage insurance (mandatory if you are putting down less than 20%) from 600 to 680, so if you need this insurance, 680 is the absolute minimum your score needs to be to buy a home.

1. Your Credit History

- Sometimes all it takes is a few negative items on your credit report to get declined for a mortgage. A handful of late payments, a bankruptcy in your past, or even a consumer proposal. Any of these reasons could be the deciding factor. It’s very important to review your credit report before you apply for a mortgage.

2. Interest Rates

- A higher credit score means better interest rates. Considering you’re going to be making monthly payments on this mortgage for the next quarter century, you want to make sure you can get them as low as possible. Slight shifts in interest rates can mean the difference between being able to afford the monthly payments and venturing into the danger zone. That’s why it’s best to wait until your score is 725 or higher, so you can unlock the lowest rates. Check out our mortgage interest calculator to see just how much you can save!

So, in answer to the original question, the best credit score to buy a house is around 725 or higher. Waiting a few extra months before making the biggest purchase of your life could save you a ton over the long run.

How Your Credit Score Can Affect Your Monthly Payment

We already know that our credit score can have a huge impact on whether we get approved for mortgages. It’s a good idea to get your credit in order before you consider purchasing a house. With poor credit, the odds are slim you’re going to be able to borrow enough to buy a home, especially in the current Canadian market.

There are, however, two other reasons beyond just wanting to get approved for a mortgage, for why you should improve your credit before you buy a home.

1. Having poor credit means you’re going to get a really high-interest rate

The higher your interest rate, the more you’re going to pay for your home when all is said and done. Taking some time to boost your credit score before you try to buy a house can unlock better interest rates and save you thousands and thousands of dollars.

2. High-interest means larger payments

Because a poor credit rating means higher interest, your monthly mortgage payment is going to take up a larger chunk in your monthly expenses. For those of you who live month to month, paycheck to paycheck, it can be pretty difficult to work in a new, hefty monthly payment.


A borrower with a 20% down payment is applying for a 30-year, fixed rate, $300,000 loan to purchase a single-family home in Westchester County, New York. She has a 780 FICO credit score, which gets her a 3.5% rate. Out of pocket, that’s $1,347 a month.

If the borrower’s credit score dropped by 100 points to 680, her rate would bump up to 3.75%, and her monthly payments would increase to $1,389, an extra $42 a month, or $500 per year.

Mortgage lenders see people with poor credit as high-risk borrowers and they offset that risk with higher interest rates. They can afford to offer lower rates to people with great credit because they are low-risk borrowers. When we’re talking about a half million dollar loan over the course of several decades, the financial institutions have to eliminate as much risk as possible.

If you want to get your credit back on track before you buy a home, consider a credit building program from Refresh Financial. There is no money upfront required, and your on-time payments are reported to the credit bureaus, just like an installment loan. The best part is that when your program is complete, you have a chunk of money that you can put towards your down payment for a home.

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