5 Factors That Impact Your Credit Score & Tips To Improve It

Mortgage Tips REENA VISANI 25 Nov

 

If you are in the market for a home, you are probably very familiar with your credit score. A healthy credit score is critical. It could mean the difference between getting approved for a mortgage loan or not. Your credit score is determined by a culmination of factors and is therefore important to have a knowledge of the factors so that you can effectively strategize ways to maintain a good score.

5 factors that impact your credit score:

 

PAYMENT HISTORY

35% is for payment history (i.e. late payments, bankruptcies, collections and judgments). Your payment history, or how consistently you pay your bills on time, is usually the biggest factor in calculating your credit score. Because it’s such an important component, late or missed payments can have a significant overall impact on your score. Lenders also want to see how likely you are to pay back the credit they are about to give you, and they figure it out by looking at how/whether or not you paid back your other loans and consumer credit.

CREDIT UTILIZATION

30% is for credit utilization. This is a measure of the amount of credit available to you vs the amount of credit you’ve used. A widely-regarded rule of thumb is to keep your total credit utilization lower than 30% of the credit available to you.

CREDIT HISTORY

15% is for the length of credit history – how long your accounts have been open and established. In general, creditors and lenders like to see that you’ve been able to properly handle credit accounts over a period of time. Credit accounts with a longer history showing responsible credit behaviour will reflect positively on credit scores.

CREDIT MIX

10% is for diversity, a mix of different types of credit you have, such as credit cards, instalment loans, mortgages, and store accounts. Diversity of credit shows lenders the types of credit products you have available.

NEW CREDIT 

10% is for new credit enquiries or credit checks. This looks at how many new accounts you have as well as how many new accounts you’ve applied for recently. Having too many new accounts may indicate to lenders and creditors that you’re taking on a lot of new debt and may be a high-risk borrower.

Tips to improve your credit score:

 

AVOID LATE OR MISSED PAYMENTS 

Payment history has the biggest impact on your credit rating. It factors for 35% of your overall score. The single biggest thing you can do to improve your credit score is the most obvious and straightforward one: pay your bills on time and avoid late or missed payments. Consider enrolling in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account.

KEEP CREDIT CARD BALANCES LOW

Thirty percent of your credit score is based on the amount you owe, so you want your balances to be as low as possible.⁣ Having balances consistently above 30%-50% could see your credit score start to drop.

GET A HIGHER CREDIT LIMIT ON YOUR CREDIT CARDS

One way to keep your credit utilization as low as possible would be to accept or request for a credit limit increase by your credit issuer. Even if you know you don’t intend to use the maximum it will give you a nice buffer to keep your credit utilization low. For example, keeping your spending the same at $1,000 and by increasing your current credit limit from $2,000 to $3,500 reduces your credit utilization from 50% to 29%.

CHECK YOUR CREDIT REPORT FOR ERRORS

Errors on your credit report happen more frequently than people think. Carefully review your credit reports from both Equifax and Transunion reporting agencies for any incorrect information that might be lowering your score. Dispute inaccurate or missing information by contacting the credit reporting agency and your lender.

KEEP YOUR OLDEST ACCOUNT ACTIVE 

The third biggest influence on your credit score is length of credit history. This is basically the average age of your credit accounts. When trying to increase your score, avoid closing older credit accounts. Keeping the accounts open and in use will help maintain the length of your credit history and better your score.

APPLY FOR NEW CREDIT SPARINGLY  

Only apply for new credit when you actually need it and not simply to boost your available credit. Opening several new credit accounts in a short time frame can lower your score.

It is always a good idea to regularly check up on your credit score – ideally at least once a year. Remember that it takes time to improve your score, so patience and persistence are key. Even if you aren’t looking to borrow money anytime soon, there are a lot of reasons to keep an eye on it. Feel free to reach out if you have any questions in regards to your credit.

Reena Visani
Mortgage Advisor #M18001020

3 Advantages of a Pre-Approval

Mortgage Tips REENA VISANI 10 Nov

3 Advantages of a Pre-Approval

While getting pre-qualified can give you a ballpark estimate on what you can afford, getting pre-approved is where the real magic happens.

Mortgage pre-approval means that a lender has stated (in writing) that you do qualify for a mortgage and what amount, based on submitted documentation of your current income and credit history.

A pre-approval usually specifies a term, interest rate and mortgage amount and is typically valid for a brief period of time, assuming various conditions are met.

There are three benefits to pre-approval including:

1. It confirms the maximum amount you can afford to spend

Not only does getting pre-approved make the search easier for you, but helps your real estate agent find the best home in your price range. Temptation will always be to start looking at the very top of your budget, but it is important to remember that there will be fees, such as mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.

2. It can secure you an interest rate for 90-120 days while you shop for your new home

Getting pre-approved doesn’t commit you to a single lender, but it does guarantee the rate offered to you will be locked in from 90 to 120 days which helps if interest rates rise while you are still shopping. If interest rates actually decrease, you would still be offered the lower rate. Another benefit to pre-approval is that, when it comes time to purchase, pre-approval lets the seller know that securing financing should not be an issue. This is extremely beneficial in competitive markets where lots of offers may be coming in.

3. It lets the seller know that securing financing should not be an issue

Lastly, pre-approval lets the seller know that you are able to make the purchase. This can be very helpful in competitive markets where lots of offers may be coming in, as it helps to inform the seller that you’re a sure thing versus other potential bidders who may not have pre-approval.

Keep in mind, once you get your pre-approval, you will want to make sure not to jeopardize it. Until your mortgage application and sale is completed, be sure you don’t quit or change jobs, buy a new car or trade up, transfer large sums of money between bank accounts, leave your bills unpaid or open up new credit cards. You do not want your financial or employment details to change at all until you have closed on the new mortgage.

If you have any questions or want to get your pre-approval started today, don’t hesitate to reach out to me!

This article is from the DLC Blog

Reena Visani
Mortgage Advisor #M18001020

Getting a Mortgage When You’re New to Canada

Mortgage Tips REENA VISANI 2 Nov

Getting a Mortgage When You’re New to Canada

Canada has seen a surge of international migration over the last few years. The federal government is planning a massive increase in the number of immigrants entering Canada, with a goal of seeing 500,000 people arrive each year by 2025.

With all these new faces wanting to plant roots in this great country, I wanted to touch base on how new immigrants can qualify to be homeowners!

PERMANENT RESIDENTS

If you are already a Permanent Resident or have received confirmation of Permanent Resident Status, you are eligible for a typical mortgage with a 5% down payment – assuming you have good credit.

NOT YET PERMANENT RESIDENTS OR HAVE LIMITED CREDIT

For Permanent Residents with limited credit, or individuals who have not yet qualified for Permanent Residency, there are still options! In fact, there are several ‘New to Canada’ mortgage programs. These are offered by CMHC, Sagen and Canada Guaranty Mortgage Insurance, and cater to this group of homebuyers.

NEW TO CANADA PROGRAMS

To qualify for New to Canada programs, you must have immigrated or relocated to Canada within the last 60 months and have had three months minimum full-time employment in Canada.

Individuals looking for 90% credit, a letter of reference from a recognized financial institution. Or, you will be required to provide six (6) months of bank statements from a primary account.

If you are seeking credit of 90.01% to 95%, you will need to produce an international credit report (Equifax or Transunion) demonstrating a strong credit profile. Or you will need to provide two alternative sources of credit, which demonstrate timely payments for the past 12 months. The alternative sources must include rental payment history and another alternative. This could be hydro/utilities, telephone, cable, cell phone or auto insurance.

ALTERNATIVE LENDERS

Another option for New to Canada residents, depending on your residency status and credit history, are alternative lenders such as B-Lenders and MIC’s (Mortgage Investment Operation). If you do not qualify for the New to Canada programs, or a standard mortgage, reach out to a DLC Mortgage Broker and they can help you navigate the alternative options!

New to Canada? Before submitting your mortgage application

Utilizing a mortgage professional will ensure you understand your options. They can also help determine the best program and mortgage choice for you. Before you talk with a mortgage professional, there are a few things you need to know when it comes to submitting an application – and getting approved – for your first mortgage in Canada:

SUPPORTING DOCUMENTS!

If you’re new to the country but have weak credit, supporting documents will be needed. These may include: proof of income, 12 months worth of rental payments or letter from landlord, documented savings, bank statements and/or letter of reference from recognized financial institution. These documents all paint the picture of whether you are a safe investment for a lender.

BUILD YOUR CREDIT RATING!

This is one of the most important aspects to getting a mortgage! Your credit rating determines your reliability as a borrower. In turn, this will determine your down payment rate. A great way to build your credit is by getting a credit card to use and pay off each month. Paying other bills such as utilities, cell phones and rent can also contribute to your credit score and reliability.

START SAVING! 

One of the most expensive aspects of home ownership is the down payment, which is an upfront cost but is vital to securing your future. As mentioned, the down payment can either be 5% or 10% depending on your status. However, if the purchase price exceeds $500,000, the minimum down payment will be 5% for the first $500,000 and 10% of any amount over $500,000 – regardless of your residency status.

CHOOSE A MORTGAGE PROVIDER! 

Once you are ready to get your mortgage, you need get in touch with a local mortgage professional. They can help you review your options and find the best mortgage product to suit your needs.

Buying a house is an exciting step for anyone, but especially for individuals who are new to the country. As daunting as it may seem, purchasing a home is completely possible with a little knowledge and preparation. If you are new to Canada and looking to get a mortgage, connect with me today at 416-561-2454 for expert advice and options that best suit you!

This article is from the DLC Blog

 

Reena Visani
Mortgage Advisor #M18001020

First-Time Home Buyer

Mortgage Tips REENA VISANI 2 Nov

First-Time Home Buyer.

Being on the path to purchasing your first home is one of the most exciting and most rewarding moments in life! While people don’t always dream of the perfect mortgage, we do grow up thinking of a white picket fence and our dream home. Even if you imagined your dream home as a 6-bedroom mansion, we all have to start somewhere!

Regardless of whether you’re buying an apartment, townhouse, rancher or two-story family house, there is nothing quite like your first home. Not only is it an amazing accomplishment and a great sense of freedom and security, but buying your first home is also a great step into the real estate market and can provide you equity and a leg-up towards future expansion.

are you ready to own a home?

Before you jump on in, there are some things you should ask yourself. As amazing as it is to be a first-time home buyer, it is important to remember that this is likely the largest financial decision you will ever make. There are a few questions you can ask yourself to make sure you’re ready to take this incredible leap!

  1. Are you financially stable?
  2. Do you have the financial management skills and discipline to handle this large of a purchase?
  3. Are you ready to devote the time to regular home maintenance?
  4. Are you aware of all the costs and responsibilities that come with being a homeowner? Let’s find out!

COSTS OF HOME OWNERSHIP:

There are two major costs of home ownership – let’s make sure you’re ready to take it on!

Upfront Costs: The initial amount of money you need to buy a home, including down payment, closing costs and any applicable taxes.

Ongoing Costs: The continued cost of living in a home you own, including mortgage payments, property taxes, insurance, utility bills, condominium fees (if applicable) and routine repairs and maintenance. It is also important to keep in mind potential major repairs, such as roof replacement or foundation repair, that may be needed now or in the future. In addition, if you choose a property that is not hooked up to municipal services (such as water or sewer) there may be additional maintenance costs to consider.

Buying your first home

If you’ve decided to take the plunge, you now need to start by figuring out what you can afford. Fortunately, there are all kinds of calculators and tools available. A great place to start is the free My Mortgage Toolbox app which can help you find a mortgage broker in your area. A mortgage broker is a great alternative to traditional banks and can help you find the best rate in the market, as well as save you time by doing the leg work for you!

Regardless of whether you choose a mortgage broker or traditional bank, the first step begins with your down payment.

SECURING YOUR DOWN PAYMENT

If you are ready to get your first mortgage, you will need a down payment. The minimum down payment on any mortgage in Canada is 5 percent but putting down more is beneficial whenever possible as it will lower the amount being borrowed. However, if you can only afford the minimum that is perfectly okay! Just remember, if you are putting down less than 20 per cent to purchase your home, default insurance will be mandatory to protect the investment.

Ideally, individuals looking to purchase their first home will have built up a nest egg of savings that they can apply towards a down payment. However, we know this is not possible for everyone so if you don’t have it all saved, don’t worry! Besides being a vital savings plan for retirement, RRSPs can be a great resource for first-time home buyers and can be cashed in up to $35,000 individually towards a down payment. In fact, most mortgage brokers will tell you nearly half of all first-time buyers use their RRSPs to help with the payment. Those first buyers who choose this option will have 15 years to pay it back and can defer these payments for up to two years if necessary. Always remember though, deferring a payment can increase the time to pay off the loan and you will still owe the full amount!

Another option for securing your down payment is a gift from a family member, typically a parent. All that is required for this is a signed Gift Letter from the parent (or family member providing the funds) which states that the money does not have to be repaid and a snapshot showing that the gifted funds have been transferred.

MORTGAGE PRE-QUALIFICATION

The first step to realizing the dream of owning your first home is pre-qualification. This process provides you with an estimate of how much you can afford based on your own report of your financial situation. The benefit of this is that it sets the baseline for a realistic price range and allows you to start looking for that perfect home within your means! Now this process is not a mortgage approval, or even a pre-approval but it helps to establish your budget. You must supply an overview of your financial history (income, assets, debt and credit score) but the real requirements come with the pre-approval process where you submit your actual documentation.

MORTGAGE PRE-APPROVAL

This is the meat of the pre-purchase process and determines the actual home price you can afford. The difference between this and pre-qualification is that pre-approval requires submission and verification of your financial history to ensure the most accurate budget to fit your needs.

Pre-Approval can help determine:

  • The maximum amount you can afford to spend
  • The monthly mortgage payment associated with your purchase price range
  • The mortgage rate for your first term

Not only does getting pre-approved make the search easier for you, but helps your real estate agent find the best home in your price range. Temptation will always be to start looking at the very top of your budget, but it is important to remember that there will be fees, such as mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.

While getting pre-approved doesn’t commit you to a single lender, but it does guarantee the rate offered to you will be locked in from 90 to 120 days which helps if interest rates rise while you are still shopping. If interest rates actually decrease, you would still be offered the lower rate. Another benefit to pre-approval is that, when it comes time to purchase, pre-approval lets the seller know that securing financing should not be an issue. This is extremely beneficial in competitive markets where lots of offers may be coming in.

PROTECTING YOUR PRE-APPROVAL

  • Refrain from having additional credit reports pulled once you have been pre-approved
  • Refrain from applying for new credit, closing off credit accounts or making large purchases until after the sale is complete
  • Be prepared to show a paper trail – any unusual deposits in your bank account may require explanation. Also if your down payment comes from savings, the bank will want 90 days of statements to ensure the funds are accounted for.

FINANCING APPROVAL

You’re almost there! Financial approval is the last step to getting your mortgage and buying your first home! You will need to keep in mind that just because you are pre-approved, it doesn’t guarantee that the final mortgage application is approved. Being entirely candid with your home-buying team throughout the process will be vital as hidden debt or buying a big ticket item during your 90-120 day pre-approval can change the amount you are able to borrow. It is best to refrain from any major purchases (such as a new car) or life changes (such as changing jobs) until after closing and you have the keys to your new home!

In some cases, pre-approval may not be guaranteed for reasons outside of your control. For instance, if the home was appraised below the purchase price, is a heritage home or has safety issues like asbestos, the lender may deny financing. Find a realtor that will be your advocate while showing you homes and always utilize an appraisal and inspection from foundation to roof to ensure that you do not encounter any hidden roadblocks!

CLOSING DAY

Phew, you made it. Closing day is one of the most exciting moments where all the house hunting and paperwork really pays off! It is on this day that you will want to make use of your lawyer or a notary.

To complete the process of closing the sale, your lender gives your lawyer the mortgage money. You would then pay out the down payment (minus the deposit) and the closing costs (typically 1 to 4% of the purchase price). From there, the lawyer or notary then pays the seller, registers the home in your name and gives you the deed and the keys!

Congratulations, you are now a home owner!!

This article is from the DLC Blog

Reena Visani
Mortgage Advisor #M18001020