What should your credit score be to buy a house?

What should your credit score be to buy a house? Here's what you'll have to know about your credit before signing the dotted line on your next home.

If you're thinking about buying a house in the near future, you've probably got a lot of questions – everything from the homebuying process, to getting a mortgage, to how to pay for costs you encounter after the place is yours. These are all good questions – and they’re all related to another question - what should your credit score be to buy a house? 

Here's what you need to know about credit and buying a house.

Your credit score is simply a measure of how likely you are to be able to repay a loan. Your score is calculated based on your past borrowing behaviour, and lenders refer to this number when they’re deciding whether or not to offer you a loan, such as a mortgage.

In Canada, credit scores range from 300 to 900. If your credit score isn't anywhere near 900, take heart. You don't need to have perfect credit to get a mortgage. In fact, as long as your credit score is in the 600-700 range, you should be able to get a mortgage with one of Canada's main financial institutions. If your score is below that, you might want to talk to a mortgage professional about seeking a mortgage through a lender that specializes in serving borrowers with lower credit scores.

Keep in mind that your score is just one part of your mortgage application, and the lender will also review your household income and any debt you have to confirm that you can afford to make your mortgage payments.

A good credit score is key to buying a home. That's because lenders see your credit score as an indication of how well you handle financial responsibility. That three-digit number gives them an idea of how risky it is to lend to you — after all, they want to make sure you pay back what you borrow, especially for a large purchase like a house. Your score could be the difference between getting an approval for a mortgage and getting turned down.

Your credit also impacts your mortgage approval another way: it might be used to help determine the rate and terms of your mortgage. If you have a higher credit score, you might get a lower interest rate or more flexible payment terms.

If you’re thinking of buying a home, it’s a good idea to check your credit score sooner rather than later. That way, if you find any credit issues on your report, you'll have time to take care of them and look for ways to improve your credit score before you apply for mortgage

The process from applying for a mortgage to moving into your new home often takes between six weeks and three months, but it can certainly take longer. During this time, it's important to maintain good credit so nothing throws a wrench into your final mortgage approval.

To prevent any credit issues that could negatively impact your mortgage application, remember to do the following.

• Avoid completing multiple mortgage applications with different lenders in a short time frame. This may flag you as a credit seeker and lower your credit score.
• Hold off on applying for other credit, such as a car loan or a loan for household appliances, that could increase your total monthly debt payments.
• Make all existing credit payments, including car loans, car leases, student loans, credit cards, and credit lines on time and in full.

Buying a house involves more than simply making payments on your mortgage. The simple truth is that when you own a home, you're going to have house-related expenses. However, it's not always possible to drop large amounts of cash on big-ticket items like new appliances, home repairs, or maintenance. If you don’t have cash available and can’t defer these expenses, you may need to borrow money to cover the costs. Here are a couple of options to consider:

• Use a line of credit: One option for larger home expenses or repairs is a line of credit. A line of credit works like a credit card in that you can borrow up to a limit. You only pay interest on what you borrow, and then make monthly payments to pay it back. Line of credit rates are often lower than credit card interest rates, and a strong credit score could reduce your rate even further. If you have a Manulife One mortgage with borrowing room available, you’re all set. You can access money, up to your borrowing limit, to cover the costs associated with getting set up in your new home.
• Use a credit card: One convenient way to pay for immediate, unexpected, or emergency home costs is with a credit card.If you’re getting a new credit card,  remember to apply for the card after closing on your house, though, sothe application doesn’t impact your credit score. A credit card allows you to fund an unexpected housing cost immediately. If you do use a credit card to fund large purchases, focus on repaying the balance quickly to minimize the amount of interest you end up paying. 

Buying a home is exciting, but it's also important to consider the impact this large and complex purchase could have on your finances and credit. If you're a first-time homebuyer, it's important to get accurate professional advice about credit and buying a house. So take it slow and do it right. A wonderful home and good credit aren't far out of your reach.