A few weeks ago, I had the pleasure of speaking to a group of students ranging from first year to post-graduate during a University of Alberta Real Estate Association event. There were two other speakers who spoke about real estate but the topic of credit ratings, down payments and other financials were very clearly on the students’ minds.
After answering some pretty specific questions over the span of an hour, it dawned on me that there is very little financial literacy among students. For those who choose to learn, of course, there are plenty of resources available but the fundamental principles of finance are not part of the current education system. Considering how important this topic is to our everyday lives, this is an incredible injustice to our youth!
As such, I would like to share some of the fundamentals I’ve learned since graduation to help ensure graduating students have what it takes to qualify for a low mortgage. There are three things you absolutely need in order to qualify : 1) good credit, 2) regular income, and 3) a down payment.
There are three things you need in order to qualify for a mortgage : 1) good credit, 2) regular income, and 3) a down payment.
When it comes time to applying for a mortgage, a good credit score is the first line of defence in securing the lowest possible mortgage rate for your new home. Many credit card companies, department stores and other institutions approach students for shiny new credit cards once they enter post-secondary studies. For many students, this is when they have their first credit cards, in their own name and beyond the reach of their parents. As enticing as it may be to begin spending, this is the best time to ensure you are using your new found finances wisely.
Firstly, remember to pay your bills on time to maintain a good credit history. This seems easy enough to do, especially when there are automatic payment systems and text message reminders. Remember that every bill will come roughly at the same time every month and keep note of it in your calendar and set up reminders for yourself to pay your bills on time – ideally a few days before the due date!
Another way to maintain good credit is to ensure you are not apply for too many credit cards, this includes department store credit cards. You likely don’t need any more than two credit cards, a Visa or Mastercard. Choose credit cards with the lowest interest rates and pay them off as quickly as you can. The more credit cards you have, the more debt you are considered having. When applying for a mortgage, this perceived debt (even on credit cards you are no longer using or have zero balances on) could prevent you from qualifying for a mortgage.
Your credit score is also affected when you have a large number of inquiries on your credit history. Every time you as for a credit check, your score goes down by a few points.
Another great tip on how to maintain a good credit score is by using less than 70% of your available credit. This means, DON’T MAX OUT YOUR CREDIT CARDS! If you have a $1,000 limit, try not to spend more than $700 on the card. And remember to pay them off as quickly as you can. Credit card debt quickly accrues and your $5 Starbucks today turns into a $15 latte tomorrow! Who wants that?
For students, fostering good spending habits and credit history is essential if they are planning to qualify for a mortgage once they begin working. With a good credit score over a four-year degree, you will likely be able to qualify for a low mortgage rate once you have secured regular income and a down payment.
If you are buying your first home, be sure to get in touch with us on how to best qualify for the lowest possible mortgage rate that could save you thousands of dollars over your lifetime.