Lenders and banks typically look at four main areas. The stronger you are in each area, the increase in the likelihood of qualifying. I'm happy to advise on specifics moving forward once you have applied. Here's a quick summary of what you need to know.
Income - Depends on how you earn your income, length of time in the same industry and being able to show it on paper. 2 years minimum is preferred. See below for specific income types.
Credit Score - Ranges from 400 to 900. To qualify for a mortgage with less than 20% down, you need a minimum beacon score of 600 to 620. From 680 to 700 or above, your score is excellent and you qualify for all products available. An important factor is to ensure you have at least two trade lines (car loan, credit card, lines of credit, personal loan, etc) for a minimum of 2 years. That helps establish and show that you are able to pay your bills on time over a longer period.
Down Payment - They range from 5% and up. Cash back products are available but they are not to be used directly for the down payment. Typically they come with a higher rate and can be clawed back (or owed back) if you break your term early. The bigger the downpayment, the less insurance premium you pay. If you put 20% down, you avoid CMHC and insurance premiums altogether and have access to even more mortgage lending options. Down payment can come from gifts from family (in most cases), investments, RRSP's, inheritance, a confirmed sale and a few other sources. It's important that you can prove the source on paper. Typically lenders want to see 3 month bank statements or investment history to see where your down payment is coming from.
Qualifying Ratios - This is the aspect of the mortgage qualification process that is the least understood by clients. Even if a client makes a high salary, they may not be eligible to purchase a home due to outstanding debts. Qualifying ratios take into consideration your entire picture. Your income, compared to your debts, heating costs, taxes and other monthly obligations. Depending on your credit score you can qualify anywhere from 40% to 44% of your gross income, compared to your total debts. In other words, you can't borrow more than 44% of your gross income every month. This ensures that you can afford all of your payments. Our computer software programs take everything into consideration with a variety of factors to determine what you qualify for and we explain the process as we go through it together.
Why you should work with a broker.
Get independent advice on your financial options. As a mortgage broker I am not tied to one lender or one type of product. My goal is to help you successfully finance your home or property. I’ll start by getting to know you and your homeownership goals, make a recommendation, and together we will decide what’s right for you.
Save time. It could take weeks for you to organize appointments with competing mortgage lenders — and I know you’d probably rather spend your time house-hunting! I work directly with dozens of lenders, and can quickly narrow down a list of those that suit you best. It makes comparison-shopping fast, easy, and convenient.
I negotiate for you. Many people are uncertain or uncomfortable negotiating mortgages directly with their bank. I negotiate mortgages each and every day on behalf of Canadian homebuyers. You can count on my market knowledge to secure competitive rates and terms that benefit you. Even if you’ve already been pre-approved for a mortgage by your bank or another financial institution, you’re not obliged to stop shopping! Let me investigate to see if there is an alternative to better suit your needs.
More choice means more competitive rates. I have access to a network of major lenders in Canada, so your options are extensive. In addition to traditional lenders, I also know what’s being offered by credit unions, trust companies, and other sources. I can also help you take care of other requirements before your closing date, such as sourcing mortgage default insurance if your down payment is less than 20% of the purchase price.
Get access to special deals and add-ons. Many financial institutions would love to have you as a client, which is why they often offer incentives to attract creditworthy customers. These can include retail points programs, discounts on appliances, shopping clubs, and more. I do the math on which offers might be worth your attention when it comes to financing or mortgage insurance — so you get the perks you deserve.
Things move quickly! My job isn’t done until your closing date goes smoothly. I’ll help ensure your mortgage transaction takes place on time and to your satisfaction.
No cost to you. On typical residential mortgage transactions my services are free of charge to you. Like many other professional services, such as insurance, mortgage brokers are generally paid a finder’s fee when we introduce trustworthy, dependable customers to a financial institution. These fees are quite standard and nearly industry-wide so that the focus remains on you, the customer.