Getting a mortgage can be stressful, but it does not have to be. Understanding the process and preparing in advance can make the process much smoother. Here are a few things to keep in mind.
What is looked at when applying for a mortgage?
Your mortgage application is reviewed by lenders based on the overall merit of your situation. There are a few key areas that are major considerations in determining whether your mortgage request can be approved.
- Credit is a primary consideration as is it an indicator of your ability to repay the debt. This goes beyond your current credit score. It includes your payment history, past judgments (collection items, bankruptcies, consumer proposals, etc.) An ideal lender has a solid score coupled with established credit that has been managed appropriately.
- Income is essential in determining overall affordability. Not all income is created equal. There is a specific approach to items like overtime, shift premiums, bonuses – items that are above-base and not guaranteed. Generally, if it is not guaranteed income and you do not have a two-year earning history (verifiable via CRA income tax documents) you cannot use it.
- Down payment (or equity depending on your deal type) is another important consideration. Depending on the property type and occupancy, 5% is the minimum down payment required in Canada. This minimum requirement also depends on your overall affordability. The down payment can come from several sources. The most common are personal savings, gifts from immediate family members, and RSP (Home Buyers’ Plan).
What else should I know?
In addition to the points mentioned above, there are a couple of additional points to consider:
- Documents are an important part of the process including,
- two-years most recent income T-slips
- two-years most recent Notice of Assessments
- two-years full T-1 generals (depending on employment type and if rental properties are owned)
- Two forms of valid photo identification
- Purchase Sale Agreements and Broker MLS
- Other items – current mortgage and property tax statements, Child Care Benefits statements, copies of bank statements, gift letters, etc.
- Lending products/options
- Closing Costs Closing costs are required in addition to the down payment. A general rule of thumb is to budget for 1.5% of the purchase price.
What should you NOT do before applying for a mortgage?
The two items that can potentially tank your ability to qualify for a mortgage are:
- Obtaining/applying for new credit – Do not buy a new car or get furniture/appliances on a deferred payment plan.
- Changing your job – If you get a great job offer, discuss the details with your Mortgage Broker first. A change in job can potentially affect your ability to obtain a mortgage or delay your ability to get the keys to your new home.
When planning to purchase or refinance, there are lots of online resources available. Check out our great mortgage calculator to help you understand how much mortgage you can access. Please download our My Mortgage Planner app. It has tons of useful information from land transfer tax estimators to online pre-approvals. If you’d like help or more information please email us at info@TheMortgageGuyNiagara.com or book a no-obligation consultation.