Credit rating and debt servicing a mortgage
It is great feeling buying your first home, but for most of us, the first step is preparing to get a mortgage.
Your credit rating and cash flow are based on a minimum of a two-year history.
As mortgage rules continue to change, the credit rating is becoming even more important as a higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.
Your credit is made up of many things that the lenders will look at.
Character, it is determined by:
- Paying your bills on time.
- No Delinquent accounts
- Available credit – Are you using all or most of your available credit? That is not a good thing. You are better off to increase your credit limit than to use more than 70% of your limit each month. If you need to increase your score faster use less than 30% of your credit limit, and if you need to use more, pay your credit cards off early so you do not go above 30% of your credit limit.
- Your total outstanding debt is considered.
Capacity: this is your ability to pay back the loan. Capacity also covers cash flow vs debt. Your employment history. How long have you been with your current employer, are you self-employed, for how long? Capacity is not what you think you can afford, it is what the lender thinks you can afford based on the debt service ratio.
Capital: how much have you saved? How much do you have for a down payment and where does it come from?
Collateral: Lenders consider the value of the property and other assets as they want to see a positive net worth. If you have a negative net worth you may not be able to get a mortgage.
Not having one of these areas in order could prevent you from getting a mortgage.
Contact you Dominion Lending Centres mortgage specialist for a free review of where you stand.