Your credit is a key factor in qualifying for a mortgage. It can be challenging to know what part of your finances you should focus on when preparing to buy a home, so we've asked our friends at the Credit Counselling Society to share their knowledge. Here's what they had to say:
The Canadian Dream
Do you dream of having your own "home sweet home"? Many of us in Canada want to own our own home. It's the Canadian dream! However, getting to the point of signing the mortgage paper takes some work (and money). You may think homeownership isn't a reality for you because your credit is less than stellar or you have too much debt. Let's take it step by step and you can decide after you get some information, whether you can make owning your own home a reality.
Find Your Financial Baseline
The first thing that you need to do is find out exactly where you're at financially. This means you need to do the following:
- Pull your credit report from Equifax and Transunion (not just one or the other as different creditors may report differently to each). This is a free service where your credit report will be mailed to you. If you want it immediately, then you'll have to pay (it's less than $20 per report);
- Pull your credit score as well. You will have to pay for it but it's worth knowing what your score is. But remember that your score changes regularly so don't get too focused on that number; and
- Fix any incorrect information on your credit report.
That's your credit information. Now you need to know your monthly numbers – this includes your net (after tax) household income, your monthly expenses (consider tracking your expenses for a few months to know the real numbers, not the ones that we make up in our heads to make us feel better!), and your debts (unsecured and secured).
Options for Debt
When it comes to your debts, your options fall into three major categories:
- Handling things on your own. This could look like budgeting, increasing income/decreasing expenses and paying off your debts one by one using the avalanche or snowball method, refinancing or consolidating your debts at your financial institution, selling assets, or getting help from family or friends;
- The Debt Management Program. This is a voluntary program where your unsecured debts are pooled into one simple monthly payment. You pay the debt pooler and they disburse the funds to your creditors on your behalf. You get significant interest relief from your creditors, learn how to manage money (if this is an issue for you), and you'll rebuild your credit after you've successfully completed the program. There are small fees on this program and this solution will temporarily impact your credit however there will not be a permanent record of your participation; and lastly
- The legal solutions. You may need to see a trustee in bankruptcy to talk about some legal options including a consumer proposal where you pay a portion of your debt back, typically by making monthly payments, or a bankruptcy, where once you've fulfilled your obligations through the trustee and are discharged, you no longer owe the debt. However both of these options will be recorded on public records permanently. There are fees associated with these legal options.
If you're not sure what to do about your credit and/or debts, connect with a non-profit credit counselling agency like the Credit Counselling Society (CCS). CCS is an accredited, non-profit charity that has three core services – free credit counselling, low cost debt solutions, and education. You can call CCS toll free at 1-888-527-8999 or visit their website www.nomoredebts.org for more information. All that you have to lose is your debt.
Thanks to the wonderful team in the Victoria office of CCS for sharing their expertise! We hope that this information helps anyone who has questions about their credit while planning for their home ownership goals.
The Auxilium team works with a network of knowledgeable professionals to make sure your real estate deal goes as smoothly as possible. If you're ready to get started on your home purchase, mortgage renewal or refinance, set up a free consultation with one of our planners today: call us toll-free at 1-855-590-6520 or visit us at 307 Goldstream Avenue during regular business hours. We can also arrange an appointment evenings or weekends to work with you.
Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.
