Welcome to Toronto, the city with the most expensive homes. Before buying a residential property please have a look at few handy tips on improving the credit score.
That’s right, Toronto has become more expensive than New Jersey. In fact, its homes are more expensive than those in Chicago, Dallas, Houston, Los Angeles, and Philadelphia. What’s more surprising is that it has become more expensive than Vancouver. Few tips on improving the credit score are discussed in detail.
With a booming population and more immigrants coming in. The question is whether or not will Torontonians, new citizens of Canada, and others in Canada will be able to buy a home in Toronto or not.
There are no easy solutions for such a phenomenon (other than leaving the city proper for surrounding suburbs). Problem is, taking out a mortgage is not as easy as it sounds.
Think about it: a house costing around C$ 2,300,000, especially a fashionable house in and around areas like York, Humber Bay Village, Downsview, East York, Rockcliffe-Smythe, North Toronto, North York and the like, eyed by a buyer who is in the middle income segment of the society; will end up either unsold or going to a buyer who is able to meet the stringent credit criteria.
The same goes for a condo priced at C$ 1,250,000 situated in Etobicoke or in any of the above areas (downtown condos cost more and are hard to get as well).
How does a prospective home buyer manage to meet the stringent credit criteria of banks and mortgage lending firms? By managing to keep a very good credit score. Let us now explore what does a credit score mean and how it can be improved.
Credit Score – what is it and why is it important?
A credit score is a number between 300-850 that indicates a consumer’s creditworthiness. The higher the score, the much better credit potential the customer has as a borrower leading to potential lenders lending them credit.
A credit score is based on the borrower’s history of credit. Either number of open accounts, total debt levels, repayment history, and a host of other factors. Lenders use credit scores to evaluate the probability of an individual repaying loans in a timely manner.
The credit score model was created by the Fair Isaac Corporation (aka FICO) and it is in widespread use by financial institutions. Despite the presence of other credit-scoring systems, the FICO store is by far the most commonly used method these days.
There are a number of ways for individuals to improve their credit score, among them are repaying loans on time and keeping debt levels at a minimum.
Factors considered in calculating credit scores include repayment history, types of loans, length of credit history. The total debt an individual has One key metric used in calculating a credit score is the utilization of credit or the percentage of available credit being used currently.
There is one point to note; it is not advisable all the time to close a credit account that is not being used as it can reduce an individual’s credit score.
Credit scores and purchasing a home through mortgages – the connection explained briefly
Good credit scores are quite valuable as they affect the buyer’s ability for accessing worthwhile loans and borrowing money needed for purchasing a home.
Buyers looking to buy homes in Toronto and nearby suburbs nowadays must go through strict credit checks by lending bodies, banks, and other financial institutions before they are given any money.
The credit scores decide the amount of mortgage one will receive.
As per the findings of numerous housing experts, credit scores help financial risk managers at financial institutions make the right decision on whether it is worth it for prospective home buyers to take additional risks in buying a home or not.
With each suburb in the Greater Toronto Area (including Toronto’s inner-suburbs) having different prices for different kinds of homes. The home buyers need to understand the different requirements that are instrumental in determining their credit score.
In case first-time buyers are unsure about a mortgage in buying a home and need guidance with the various factors involved while determining the credit score.
An experienced real estate agent can not only explain to them the things involved. They also connect them with the right mortgage agents in helping them determine a price point for the mortgage approval. They even make them understand the provision of sound advice on the buyer’s purchasing decisions.
Mortgage approvals based on credit scores are a make or break factor. The consequences of such can seriously affect the home buyer’s decision to take a mortgage for buying a home.
Factors involved in calculating credit score
The main factors involved in calculating the credit score are as under:
- Length of credit history.
- Used versus available credit.
- Public records.
- History of payments.
- The number of inquiries in the consumer’s credit file.
Payment history has a weightage of almost 35%, used versus available credit at 30%.
The credit history weighs for almost 15% whereas public records and the number of inquiries in the credit file each have a weightage of 10%.
A Handful of Tips on Improving the Credit Score
Here are a handful of factors for prospective home buyers to improve their credit score when applying for a mortgage to buy a home in Toronto:
Paying the bills on time
When banks, mortgage lending institutions, and other financial bodies review a prospective home buyer’s credit score, the first thing they want to know is whether or not they can pay their bills on time. Also, they also need to know if they are capable of paying mortgage payments at regular intervals.
Hence, those who are applying for a mortgage must ensure that they are paying all their bills on time, such as rent, telephone, utilities, internet and the like.
Ratio of credit utilization
Prospective home buyers must add up all your credit card balances together and divide them by the amount of total credit limit they have. If the credit utilization ratio is low, then it helps maintain a good credit score.
Most lenders prefer ratios of 30% or less because that paves the way for a good credit score. People having good credit scores have a lower ratio of credit utilization.
Disputing any inaccuracies detected in credit reports
Prospective home buyers should look out for any and all inaccuracies they can find in their credit report. They should check all the details to prevent any discrepancies. Monitoring credit helps in the detection and removal of inaccuracies in time before they can cause havoc on the credit score and thus leading to rejection of the mortgage.
Conclusion
The credit score is crucial when it comes to securing a mortgage for a home, regardless of where the home buyer is.
However, in Toronto; before approving any mortgage, maintaining a good credit score is crucial because of not just high prices but also due to additional credit stress tests.
Hope the listed tips are informative tips on improving the credit score to buy a property.
Apart from this, if you are interested to know more about credit scores for mortgages then visit our Home Improvement category.
