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  • Do I qualify for a mortgage?

    October 9, 2015
  • Tips on how to qualify for a mortgage? Find out banks secrets and what lenders look for!

    Every lender looks for certain qualifying criteria, when they are considering to give you a mortgage. From my experience dealing with bans and lenders in Mississauga, or anywhere in GTA, most lenders have similar criteria but some have drastically different risk levels hey are wiling to take on each criteria.

    So how do you win and get the best mortgage terms and best rate?

    First answer is of course, “Get a professional mortgage Agent or Broker to handle it all for you”. Second less obvious question is clean up some of your issues that may be hindering your performance in lender’s review of your mortgage. But lets look at what lenders want!

    Do I qualify for a mortgage test – Lender’s Qualifying criteria for a mortgage

    Is your credit score over 650?

    The first thing most lenders look at is your credit score. It tells a potential lender whether you will likely make your payments on time or if you are a risk to default on your mortgage.
    Why credit score of 650 or more matters? It is a statistical game in simple math. If most of good borrowers have a score above certain number that that number is a cut off below which you become an increased risk to lend money to. Most of local lenders feel that 650 is that cutoff number. Higher than that is better, and it will get you such things as a better or premium interest rate and easier approval, as well as better consideration if some of your other criteria is not as good, such as down payment, work history etc.
    But this is not the end. Having a score below 650 does not mean that we can not get you a mortgage. Luckily, we have dozens of lenders that allow lower scores, right down to 500’s.

    Do you have enough income?

    This is the second most important criteria lenders look for. If your credit score is good, do you make enough money to make the payments. Most lenders will require a certain amount of cushion in your income so that there is money left over after you pay your mortgage payment, to pay your other debts and bills. This really is for your protection and much as for lender’s protection.

    Are you self employed, salaried employee, full time or part time?

    In addition to that, lenders will mediately look for if your job a full time job that will likely continue to employ you and provide you the means to pay for the mortgage. If you are not full time, salaried employees, it becomes more difficult to qualify. Self employed borrowers have the most difficult time getting approved. Luckily for you, we work with lenders that will lend you in those situations as well.

    Do you have enough down payment?

    This is important because lenders want to know if you have “skin in the game”. Lenders want you to take some risk as well by putting your own money on the line. This increases the likely hood that you will try harder to honour your mortgage commitment. 5% is the lowest down payment you can buy a home with these days, but even if you don’t have that money, you can use gifted downpayment to start with. If you are not sure about this call me and I will review your situation and see if you will qualify (don’t forget there are also some closing costs involved in addition to your downpayment usually 1%-2%).

    How is your GDS and TDS (gross debt service and total debt service)?

    Most lenders have fairly close percentages they will accept in terms of how much your total debt (all your loans and credit cards and as well as your mortgage added in) will take from your income. That ratio should not be more that 30-45% varying from a lender to a lender. Add up your monthly payments and divide by your monthly combined income of all applicants and the will give you the percentage. More than 40% for TDS and more than 30-35% for GDS becomes an issue and approval will be difficult with most banks.

    Does your mortgage need to be insured by by an insurer?

    If your mortgage downpayment is less than 20%, your mortgage will have to be insured which is bank’s way of protecting them because less downpayment is greater risk that borrower will not be able to pay. This is an additional problem because not only does a lender have to approve you but the insurer will look at your file independently and can reject your application even if the lender said yes. This is why it is critical that you use a mortgage agent or a mortgage broker to help you with your application to ensure that you will qualify before you submit your application. If you are rejected by one insurer, chances are we can try another, but since there is only 3, you will want to make sure you do it right the first time.