How Do Mortgages Work
In the simplest terms, mortgages are basically large loans from banks or financial institutions. Its just another way to borrow money.
For example, if you borrow $200,000 at 3.00% APR, you will pay approximately $6,000 per year for the ability to have $200,000 to purchase a house to live in. This is why mortgage rates are so important, because the higher your mortgage rate, the more money you will pay in the long-run.
Getting A Free Copy Of Your Credit Report In Canada
Every twelve months, youre entitled to a free copy of your credit report from Equifax and TransUnion as a Canadian. You can obtain your free copy by phone, in person, mail or fax with Equifax. With TransUnion, you can attain your free copy online, by phone, mail or in person, but not via fax.
Do you know how to read your credit report? Learn here.
Mail or Fax
First, you need to download and complete the Canadian Credit Report Request Form from Equifax. Next, youll need to provide a photocopy, including the front and back, of two pieces of valid current Canadian government issued identification. Acceptable documents include:
- Drivers license
Or fax to: 355-8502
There are four Equifax locations where you can obtain your free copy in person. Youll be required to bring with you two pieces of identification that are valid and current showing photo identification and proof of your current address. Anything from the list above is acceptable, however, physical copies are required as opposed to digital copies or photocopies.
You can obtain your free copy of your credit report from Equifax by calling 1 465-7166 which is an automated tool that uses your personal information to authenticate your identity. A part of the process is entering your social insurance number, be sure to have it handy when you call.
Interested in how your credit score is calculated? .
- Drivers license
For even more information about getting your credit report, .
What Scores And Models Are Used When Applying For A Mortgage
FICO® created different scoring models for each credit bureauExperian, TransUnion and Equifax. The commonly used FICO® Scores for mortgage lending are:
- FICO® Score 2, or Experian/Fair Isaac Risk Model v2
- FICO® Score 5, or Equifax Beacon 5
- FICO® Score 4, or TransUnion FICO® Risk Score 04
Mortgage lenders will often get a single report that contains your credit reports from each of the three credit bureaus and the associated FICO® Scores. It may base the lending decision on your middle credit score or, if you’re applying jointly with a partner, the lower middle score.
Keep this in mind when you’re trying to figure out what . If you’re looking for a mortgage that requires a minimum credit score of 580, you may need your middle score to be at least 580 based one these specific FICO® Score models.
There are exceptions, though. Mortgage lenders could use different credit scoring models for loans that aren’t secured or bought by Fannie Mae or Freddie Mac. You might even be able to get a mortgage if you don’t have a credit history or score at all.
Additionally, there’s a review underway that could open up the use of different credit scoring models for mortgages, even if they’re secured or bought by Fannie Mae or Freddie Mac. However, until there’s a change, many mortgage lenders will continue to use these three classic FICO® Scores.
How Many Credit Scores Are There
There are many. And knowing which credit score is the most accurate can make a big difference when you’re applying for credit. On its face, a credit score is merely a numerical representation of the data in your credit reports held by the three major credit bureaus, TransUnion, Experian, and Equifax. So, that’s at least three potential credit scores right there.
Plus, there are two main credit scoring models that those credit bureaus use FICO and VantageScore. Not to mention the credit scores that are available for educational purposes only.
Different creditors might report your activity to one or all three of these bureaus. This is another reason your credit score could vary among different providers.
Further, each company provides a credit score using its own formulas to calculate scores using the data in your credit reports.
It gets worse:
Each score can emphasize different aspects of your credit behavior.
One credit scoring company might give more weight to late payments, while another might focus more on your auto loan history or a mixture of credit.
Essentially, this means that your score can not only be confusing but also that there is no such thing as an “accurate” credit score.
Each formula uses factual information from your credit history. However, each weighs and calculates that information differently.
Which Fico Score Do Lenders Use
This is completely dependent on the lender. In most cases, credit card issuers and loan providers will follow FICOs advice and use niche-relevant scores. But, bureau-reporting companies are often slow to take on the new score algorithms. Sometimes the credit report bureaus will also take a while before adapting to the more recent scores.
Take a look below for a breakdown of what credit scores might get pulled based on the bureau the lender uses.
The specific credit scores used by the credit report bureau Innovis are not well-documented at this time.
While most lenders currently use FICO Score 8, its important to note that a FICO Score 9 exists and is technically newer.
These are just some of the more common FICO scores, as well over 50 different algorithms exist.
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What Factors Go Into A Credit Score
Its important to know your credit score and understand what affects it before you begin the mortgage process. Once you understand this information, you can begin to positively impact your credit score or maintain it so you can give yourself the best chance of qualifying for a mortgage.
While exact scoring models may vary by lender, some variation of the standard FICO® Score is often used as a base. FICO® takes different variables on your credit reports, such as those listed below, from the three major credit bureaus to compile your score. FICO® Scores range from 300 850.
From this information, they compile a score based on the following factors:
- Payment history
- New credit
Where To Check Your Fico Score Before Applying For A Mortgage
Many free credit services dont use the FICO scoring model, which is the one your mortgage lender will be looking at.
To be sure the score you check is comparable to what a mortgage lender will see, you should use one of these sites:
- AnnualCreditReport.com This is the only official source for your free credit report. Youre typically entitled to one free credit report per year, but the site is offering free reports each week during the coronavirus pandemic
Whether its free, or you pay a nominal fee, the end result will be worthwhile.
You can save time and energy by knowing the scores you see should be in line with what your lender will see.
As long as you continue to make your payments on time, keep your credit utilization relatively low, and you dont go shopping for new credit you dont need, over time your score is going to be pretty high for every credit scoring model.
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What Is A Good Credit Score Range
Good credit score = 680 739: Credit scores around 700 are considered the threshold to good credit. Lenders are comfortable with this FICO score range, and the decision to extend credit is much easier. Borrowers in this range will almost always be approved for a loan and will be offered lower interest rates. If you have a 680 credit score and its moving up, youre definitely on the right track.
According to FICO, the median credit score in the U.S. is in this range, at 723. Borrowers with this good credit score are only delinquent 5% of the time.
Other Places To Check Your Credit Score
Although other scores arent used as often by lenders, they are still useful for tracking changes to your credit and are offered for free.
If you dont have a credit card or other product that provides free access to your score, it doesnt hurt to track one of the other scores, even though it isnt a FICO score.
You can also use these scores to check if you are making progress on your credit, and if there is a major decline or suspicious activity on your credit report, you can catch it right away. Then, you can at least investigate the activity and fix any issues.
Some of the other credit scores you might want to keep an eye on include the following:
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What Can I Do To Improve My Credit Score
When you get your credit score, you might get information on how you can improve it. Improving your score a lot is likely to take some time, but it can be done. Under most scoring systems, focus on paying your bills in a timely way, paying down any outstanding balances, and staying away from new debt.
What Else Do Mortgage Lenders Consider
Your credit score is a key factor in determining whether you qualify for a mortgage. But its not the only one lenders consider.
Income: Lenders will also look at your income. They want to make sure you make enough money each month to afford your payments.
Debt-to-income ratio: Lenders also look at your monthly debts. Lenders vary, but they generally want your total monthly debts, including your estimated new mortgage payment, to consume no more than 43% of your gross monthly income. If your debt-to-income ratio is higher, you might struggle to qualify for a mortgage.
Down payment: The bigger your down payment, the more likely it is that youll qualify for a mortgage with a lower interest rate. Thats because lenders think you are less likely to stop making your payments if youve already invested a significant amount of your money into your loan. A higher down payment makes your loan less risky for lenders.
Savings: Lenders want to make sure that you have funds available to make your mortgage payment if your income should unexpectedly dry up. Because of this, most will want to see that you have enough money saved to cover at least two months of mortgage payments.
Employment history: Lenders vary, but they usually like to see that youve worked at the same job, or in the same industry, for at least 2 years. They believe youre less likely to lose that job, and that stream of income, if youve built up a longer work history.
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What Credit Score Do You Need To Get A Mortgage Learn The Key Fico Thresholds
Mortgage Q& A: What credit score do I need to get a mortgage?
If youre thinking about purchasing a new home or refinancing an existing mortgage, you should know that your credit score is going to be a big factor.
In fact, it can make or break your loan approval and carries the most weight when it comes to determining your mortgage rate.
Why are credit scores so important to mortgage lenders, you ask?
Well, they use credit score to measure your payment default risk, coupled with things like down payment, income, assets, and property type.
While credit scores arent perfect, and were even partially blamed for the most recent mortgage crisis, they do tell lenders a lot about you.
Simply put, the higher your score, the lower your interest rate, and the more loan options youll have. So be sure to get it right!
Best For Flexible Terms
Who’s this for? OneMain Financial offers loan options that are much less rigid compared to other lenders. This lender generally accepts applicants with at least a poor or fair credit score, but if you’re worried your credit score will hurt your chances of securing a better interest rate, you may be able to submit your application with a co-applicant. Plus, borrowers can take advantage of repayment terms with a bit more flexibility compared to that of some lenders as terms range from 24 months to 60 months.
Another feature that makes this lender a little more flexible is the ability to secure your loan with collateral. Personal loans are generally unsecured debt, meaning you can borrow the money outright without having to offer up something of value. But with secured loans, a borrower essentially uses another asset as a “promise” that if they fail to repay their loan in full, the lender can seize that asset from them as collateral. Not only does OneMain Financial give you this option, but doing so also lets you potentially receive an even lower interest rate. Plus, borrowers can actually choose the date their monthly payments are due.
The origination fee with OneMain Financial is on the higher end: either a fixed fee between $25 and $500 or up to 10% of the loan amount, depending on which state you live in. And while there aren’t any penalties for paying off the loan early, there is a late fee that will run you either $30 or up to 15% .
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Having High Credit Card Balances:
Maxed-out credit cards could negatively affect your credit scores.
Meanwhile, showcasing multiple examples of open credit accounts that don’t have late or missed payments may improve your credit scores. Learn more about what factors impact your credit scores or learn how to check your credit score here.
How Do I Check My Auto Score
You can check your FICO® Auto Score by purchasing your credit reports and scores . However, there are also many ways to check your other credit scores for free.
While each score you receive will depend on the scoring model and the underlying credit report, knowing these other scores can give you a general idea of where you stand before you apply for an auto loan.
Some of the places you can look for a free credit score include:
- Banks and credit unions
- Online financial product comparison sites
- Experian gives you free access to a FICO® Score 8 based on your Experian credit report
- AnnualCreditReport.com offers one free report from each of the credit bureaus each year
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What Mortgage Lenders Use Vantagescore
- VantageScore isnt used by any mortgage lenders right now
- But the company is pleading its case to be an option
- The problem is doing so requires a lot of work and careful thought
- And FICO is arguing that their credit score wont create many more eligible mortgage applicants
At the moment, none as far as I know. VantageScore is working very hard to change that, but well see if it actually materializes.
FHFA director Mel Watt, whose agency oversees Fannie Mae and Freddie Mac, recently noted that any credit score model change would not go into effect before 2019.
And he didnt sound optimistic that there would be a change, despite the introduction of a bill called The Credit Score Competition Act of 2017 that wants other credit scoring models to be considered.
VantageScore has argued that it scores millions more consumers than FICO, and some of these consumers could be potential mortgage applicants.
But FICO argues that very few unscoreable borrowers would actually want/qualify for a home loan. Stay tuned on that one.
While it might sound unfair to only allow one company to score mortgage applicants, it does mean that consumers should focus on their FICO scores since they seem to be the only ones used by lenders, at least for the moment.
That being said, those other scores you receive for free often arent the same as the ones the lenders pull, though theyre typically not far off.
Which Credit Bureau Will Your Lender Pull From
All you have to do is ask!
Your lender should be more than willing to tell you which bureau they plan to use when pulling your report. Once you have this information, you can pull your file to see how you will come across it.
Concerning the Fair Credit Reporting Act, this should only create an inquiry on one of your reports if it shows up across the board, you might be able to dispute its removal. If the inquirys effect on your credit score concerns you, remember that a single inquiry will not hurt your score by more than five points, and it will have zero effect after two years.
Interestingly, you might want to consider this variable when shopping for the best rates and highest card limits. Some consumers are unfortunate enough to have a staggering score difference between bureaus.
If your credit rating is 10 points or higher at one of the bureaus, then it would make sense to shop for financing through lenders that pull from there. Most lenders are fixed to a single bureau, so it will not be hard to manipulate your loan application results this way.
That said, some lenders will pull your credit report from multiple bureaus. Sometimes this is done to gather missing details, but its standard practice for many lenders.
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When It Comes To Getting A Mortgage There Are Enough Numbers Flying Around To Make Any Mathematician Happy Lenders Will Look At A Number Of Items Which Can Include Your Credit History Your Income And How Much Debt You Have Among Other Things
But one number is perhaps one of the most important numbers of all. Your FICO® scores can impact whether you get a loan or not, and if so, at what interest rate. Thats why its important to understand the nuances of your FICO® scores. Luckily, its not rocket science. Heres the scoop on how your FICO® scores can affect your mortgage.