Not many people are aware of the importance of a good credit rating. Every time you apply for credit, it is recorded on the credit bureau.

Applying For A Mortgage

Mortgage approved

Having a better credit score when you apply for a mortgage can grant you a better mortgage rate.  All lenders examine your credit history when applying for any kind of credit. This is their safeguard. They are able to ascertain if you are reliable and manage your money correctly.  Your lender reports the new loan to the credit bureau. They do this once you close the loan and begin your mortgage payments.

Any credit inquiries made within 30 days only counts as one inquiry. For every inquiry, your credit score is affected by five to seven points.

Your mortgage specialist may check your credit history twice during the process of applying for the mortgage. Also, just before the deal closes. If 30 days have elapsed between inquiries, your credit score can drop. It can plummet by almost fourteen points.

Making Payments on Time Will Increase Your Credit Score

Making regular payments affects your credit score by 35 percent. The types of debt you have affect your credit score by 10 percent. Therefore your payment history is the most important factor that will affect your credit rating.  If you make your mortgage payments on time, your credit score will improve.

An easy way of ensuring your mortgage payments are made on time is to have your financial institution deduct automatic payments directly from your bank account. This way, there is no worry about a late payment.

Using A Co-Signer

being married

If your credit rating is not good, but you have the money for a downpayment, and the income to secure a mortgage, you may be asked for a co-signer. A co-signer is someone who goes on a mortgage application with the primary borrowers.

The primary borrowers may not qualify on their own and may need the additional backing to acquire a mortgage. There are certain criteria that a co-signer must meet such as:

  • They must have a low debt to income ratio
  • A stable income
  • A good credit rating.

In the event the primary borrowers do not pay the mortgage, the co-signer is then responsible for the mortgage payments.

Tax Breaks

There are a few tax breaks that are associated with owning a home. In Canada, you can claim $5000 for the purchase of a home that qualifies as follows:

  • You, your partner or spouse acquired a qualifying home, and you did not live in another home owned by your or your partner or spouse in the year of the new purchase or in any of the four years preceding that.

 

  • A qualifying home is one that is registered in you, your partner, and or spouse’s names with the Land Registry Office and located in Canada.

 

  • A qualifying home is considered semi-detached houses, fully detached houses, mobile homes, townhouses, apartment buildings, or apartments in duplexes, triplexes and fourplexes. Modular homes and floating homes are also identified as qualifying housing.

The Home Accessibility Tax Credit of up to $10,000 can be granted for Canadian Seniors aged 65 and older. There are certain requirements that must be met.

New Build GST/HST rebates are available to those who:

  • Have purchased a new build, or constructed, or substantially renovated housing for use as their primary residence.
  • You have purchased shares in a co-op complex as long as you are the primary resident.
  • Have built or substantially renovated your own home yourself or hired professionals. This also must be for the use of your primary residence. The fair market value of the house is less than $450,000 after the renovations.

Applying for Other Credit

credit

Indeed a mortgage can be a large loan. However, you may qualify for other credit. When applying for additional credit,  the agency will check many factors to determine if you meet the qualifications.

  • Total current debt will be taken into account.
  • They will also want to know how much your living expenses are. Total income is also a big factor.
  • They will also conduct a credit check to see how your credit score is.

You may not always qualify for the amount you wish to borrow. However, you may qualify for some. There is a debt to income ratio standard that must be met.

Inability to Pay Your Mortgage

Circumstances can change in your life, which will directly affect your income. Illness and inability to work with no sick benefits or disability insurance can be disastrous.  Job loss of one or both of the mortgagees can directly affect the ability to make mortgage payments on time or at all.

Overextending your finances can be debilitating. Some people have lost their vehicles, cottages, and homes over too much debt.

Death of one of the mortgagees, without mortgage insurance coverage. If one of the mortgagees passes away and the other does not have sufficient income to cover the mortgage, it’s next to impossible to meet their obligations.

The inability to pay your mortgage can lead to the financial institution repossessing your home. It will go up for the power of sale, usually below market value so that the financial institution can recoup their money.

This could result in a bankruptcy issue and the inability to attain any further credit.

Can Buying A Home Improve Your Credit Rating?

Buying a home can definitely improve your credit score if you make all your mortgage payments on time.  It is also important to pay your utility bills on time as well as this too can affect your credit score.

Missing payments or late payments can lead to interest fees and lowering your credit rating.

It is also a good idea to make additional annual payments on your mortgage. Not only does this reduce the interest you will pay, but it will also reduce your amortization period.

Many people choose to pay their mortgage bi-weekly, this is another way to reduce interest amounts and amortization period. Some others choose to pay monthly to correspond with their pay frequency.

Resources:

https://turbotax.intuit.ca/tips/home-tax-deductions-credits-in-canada-5223
https://loanscanada.ca/credit/building-your-credit-to-buy-a-house/
https://globalnews.ca/news/4167264/mortgage-credit-history-canada-alternative-credit-scores/
https://www.canada.ca/en/financial-consumer-agency/services/buying-home.html