Though the U.S. real estate market has shown signs of rebounding, it remains inconsistent at times. Another option for many American investors is the Canadian market. There are some good opportunities for real estate investment available through the United States’ neighbor to the north. While there are some differences in the processes used to purchase property in the two countries, one thing that remains the same is the importance of good credit scores.
Why credit scores matter
A good credit report will impact the application process for a real estate purchase in a variety of ways.
*Interest rates – Higher credit scores will mean financial institutions will be willing to offer better interest rates. Poor credit scores signal riskier borrowers, meaning the lender will charge higher rates. This can mean the difference in thousands of dollars in the overall cost of the purchase.
*Approval – In some cases, a poor credit score could even cause the bank to deny a loan application.
What to know about credit scores
While the U.S. and Canada share a historically good relationship, the two do operate differently in certain political and economic arenas. Even small differences in the process can result in the loan application being rejected, or paying thousands of extra dollars in fees or interest.
*Credit reporting firms – In the United States there are generally three major companies that create credit scores that are then figured into a credit report. In Canada, the two most popular firms are Equifax and Transunion.
*What’s in a credit report – A person’s payment history, types of credit, amounts that are owed, length of credit history and new credit will all be considered in a credit report. It should be noted payment history is weighted the most in the Canadian formula.
*Do credit scores transfer? – An investor in the U.S. likely will spend several years building up their credit score, but that may all be for naught if they suddenly decide to try to make some real estate investments in Canada. Unless some credit history has been build up in Canada, financial institutions may not recognize the credit scores based out of the U.S. Exceptions could be found through certain lending institutions or the credit bureau. Some banks in Canada have partnerships with those in the United States, so they may agree to use the credit score from the U.S. In addition, Equifax has subsidiaries around the world and could draw its credit rating from a U.S. firm.
*Where to get the mortgage – One way to get around not having a credit score in Canada may be to secure a loan in the U.S. However, Canadian lenders would be better equipped to help the investor navigate through the differences in U.S. and Canadian real estate investments. Those differences could make or break the investment.
A good credit score is extremely important to anyone wanting to invest in real estate, whether in the U.S. or Canada. The better the score, the more likely the investor is to be approved for the loan and to receive favorable terms.
Claire Atkinson writes for the Kanetix comparison service in Manitoba, which has more advice on Canadian mortgages.