Learn to see if you qualify for a mortgage today, and solutions to common problems if you need more time.
Part of our service offering is helping you qualify for a mortgage so that you can own your own home.
If you think your financial situation is in pretty good shape, then getting straight to a pre-approval discussion for a mortgage today is likely your best next step.
If you are not sure if you can qualify, read on below and see where you stand. If there are some issues to deal with (such as bruised or lack of credit, employment probation, debt ratios too high, not enough down payment, etc.) we'll address some of your options.
When a lender assesses the merits of your loan application, they will organize their review over five different areas, called the 5 C's of Lending: Capital, Capacity, Credit, Collateral, and Conditions. You being aware of what they are looking for is essential to obtaining a mortgage. Getting your " financial ducks in a row" is the first part of the process.
With the help of your mortgage advisor, you will need to satisfactorily address all of these variable components in order to be approved for a mortgage:
1) Down Payment or Equity -- lenders want to know how much down payment or capital you have, where you got it from exactly (saved it, borrowed it, got it from your parents, cashed in a RRSP/TFSA, sold something, etc.), and that it is essentially sitting in the bank. They are looking to see how much "skin in the game" you have personally.
“You have to have some of your own money in the deal, and more is always better.”
The more of your "skin in the game" as a percentage of the house price, the lower the risk (of losing money if you default) for them.
2) Income/Employment -- lenders want to know how you earn your money, how much, and how reliable it is. They want to make sure you have the capacity to pay the mortgage plus whatever other debt obligations you already have (like credit cards, vehicle loans, personal loans, lines of credit, alimony, child support, etc.).
“You have to prove your income is reliable and sufficient enough to pay the new mortgage and your existing debts.”
If you have too much debt relative to your income, then lenders are obligated (by law) to reduce the size of a mortgage they will approve. Too many debt repayments relative to your income simply means a smaller (or no) mortgage.
Lenders are also looking at your income reliability, to see that you have a track record in your profession, especially the self-employed. The more track record (of both earnings and experience), the less risk of unemployment. Likewise, if your industry is cyclical and employer doesn't guarantee hours, then a track record of average provable earnings is even more important to show stability. You and I both know the green guy gets cut first.
Debt Consolidation Mortgage (if you own already)
3) Credit - lenders want to see and evaluate your credit history. They want to know that when you borrow money, you pay it back on time as agreed, and this is what your credit report shows. If you have never borrowed money in Canada (credit card, car loan, etc.), then you will need to establish your credit history for at least a year.
“Your credit history has to demonstrate that when someone lends you money, that you pay them back as agreed.”
If you have had past credit difficulties, then lenders are looking so see if you have cleaned things up yet or if any of these issues have yet to be resolved. If there are some problems, then your down payment is going to have to be very big, like 20%-25% or more, or you will have to fix your credit first.
Secured Credit Cards
4) Property - lenders want to know exactly what you are buying, its phsyical condition, appraised value and location. Their concern is simply, if you do not or cannot repay your mortgage and they have to take it back (seize or foreclose on it), will they be able to sell it quickly and recover their money!
A nice house in the city is not usually a problem - a small house in rough shape in the boondocks is. The property is the lender's collateral and gives them security of repayment. So while you might get pre-approved for a mortgage, that pre-approval is always subject to lenders liking the property.
5) Other - finally, lenders make a subjective evaluation of other conditions that might add or subtract risk in giving you a loan. For example, frequently moving around or switching employers might indicate you can't hold a job or that your industry is in trouble, hence instability. Likewise, if there is some potential income instability (economic down turn for example), do you have other assets you could sell or savings to fall back on if you run into financial hard-times? Have you spent every cent you ever made or can you demonstrate you are stable and able to self-manage? Are you going to live in the property yourself or rent it out? Statistics clearly indicate that the risk of default is much higher for rental properties. Pending divorce or unpaid income taxes are other examples of conditions that lenders don't like.
As licensed professional mortgage brokers, we know exactly what it takes to qualify you for a mortgage and we do more than just get you a great mortgage at a great rate, we will show you the way, too.