Credit Report Canada recommends you check out your credit score before you apply for a mortgage. If you are on the hunt this summer for a house or condo and are planning on putting in less than 25% down payment, be aware that your credit score will begin to have greater importance. Generally for Canadians who have less than 25% down have to obtain mortgage insurance. It is a requirement by the Federal Government and there is really no way around it.
Also, keep in mind that although the bank my have approved you for a loan, mortgage insurance companies such as the Canadian Mortgage and Housing Corporation (CMHC) can deny it. For all low down payment scenarios, to successfully obtain a mortgage you will have to be approved by the lender and by the mortgage insurance company.
Loan to Value ration is one of the criteria that mortgage insurance companies use to assess whether you qualify for a loan. If approved LTV is used to determine if it will be for a conventional loan or a high ratio loan. A higher LTV means you are a greater risk to the lender.
The LTV is the amount of the mortgage loan compared to the value of the property.
Here is an example. Assume:
Property Value = $500,000
Down Payment = $25,000
In this case the LTV = 95%. A $25,000 down payment will leave the bank covering 95% of the value.
Like many Canadians, saving 25% for a down payment is a large amount and most opt for lower payment options in order to obtain their dream property sooner. However, if your LTV is high, it will make it more difficult for you to be approved. Here are some credit score considerations when putting a lower down payment in the Canadian housing market and meeting the threshold for being approved for mortgage insurance (CMHC). Various factors come into play when determining if you will be approved for a mortgage loan, however, ideally Canadians should have a credit score of 680 or more.
Credit Score Requirements
Credit Score of 610+
Canadians with a score of at least 610 can be approved for mortgage insurance (CMHC) with LTV between 90.01% to 95%
For LTV greater than 80% a credit score of 600+ recommended.
For LTV between 60.01% to 80% a credit score of 580+ is recommended.