At Client First Mortgage Solutions our experienced Mortgage Advisors can help you with Understanding Your Credit report (https://clientfirstmortgages.com/pdf/Understanding-Your-Credit-report.pdf).
What is a Credit Report?
A Credit Report is a record of an individual’s payment history available at a credit bureau.
How can I access my Credit Score?
The easiest and safest method of ordering your own Credit Report is by internet through a credit-reporting agency such as Equifax ( www.eqifax.ca) or TransUnion Canada (www.tranunion.ca).
What the Lenders look at:
Lenders use your Credit Score as one aspect of determining your borrowing power. The better your score, the length of establishing credit and your payment history, the better it is when it comes to your mortgage financing.
Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 years.
Here’s an Example:
Comparing the credit profiles of Jane and John who make a gross annual income of $50,000 the following would apply:
First Gross Debt Service Ratio (GDS) is the combined shelter expenses (heat, property tax, half of condo fees & mortgage payment) in relation to the borrowers gross income. And Total Debt Service Ratio (TDS) is the GDS plus all other monthly debt liabilities in relation to the borrowers gross income. Let’s compare them below:
Jane
- Credit Score over 680
- GDS allowed is 39%
- TDS allowed is 44%
- Each year Jane may allocate $19,500 towards GDS and $22,000 towards TDS
John
- Credit Score between 600-679
- GDS allowed is 35%
- TDS allowed is 42%
- Each year John may allocate $17,500 towards GDS and $21,000 towards TDS
Let’s assume heat and property tax combined are $300/month. This means that Jane with her excellent credit can allocate $1,325 towards her mortgage payment and John can allocate $1,158 toward his mortgage payment.
Using the current Benchmark Qualifying Rate of 4.64% to qualify Jane may qualify for a mortgage of $236,066 and John may qualify for a mortgage of $206,313, a difference of $29,735.
What does this mean?
As you can see there is quite a difference in mortgage amounts allowed under each credit rating. So as stated above you should qualify for a larger mortgage amount with a better credit score, the length of time you have been establishing your credit and your payment history.
What can you do?
Please contact one of our experienced Mortgage Advisors today to help you determine your maximum mortgage amount, and if needed help you make credit decisions that may help improve your credit score.
Original Article
https://dominionlending.ca/news/credit-score-affects-purchase-price/
