It’s not an uncommon occurrence for a real estate deal to fall apart due to financing and mortgage issues. Having the proper advice and strategy from a mortgage brokerage or financial institution is imperative when making the probably the largest investment in your life. There are a number of options for home buyers to discuss with your financial advisor or mortgage broker before you beginning the home search process. Our team has all been involved in various transactions where clients have begun the search for a new home before getting a proper mortgage approval. In the end it usually ends in a phone call that doesn’t generally end well for the buyer. It’s the old saying; “Don’t put the cart before the horse.” Knowing your financial situation and limitations prior to searching for a home is the key foundation to proceed with this large purchase.
Here are just a few keys to make sure you have all your ducks in a row before starting the home search process. Getting good advice from your mortgage broker or lending professionals will save you a lot of disappointment and frustration in the end.
Here are our 5 tips on how to get a mortgage approval and how to qualify for a mortgage:
Tips for applying for a mortgage
Canadian lenders often will use the 5 C’s of credit when assessing your ability to pay back a mortgage and whether you get the mortgage approved.
- Credit history - Your lender will want to make sure when you've borrowed money, you've paid it back
- Capital - Ensuring you’ve accumulated assets
- Collateral - When it comes to a mortgage, you're putting your house up as collateral
- Capacity - In short, capacity is debt servicing. For instance, your housing cost shouldn't exceed 30 per cent to 32 per cent of your gross income and all of your debts shouldn't exceed 40 per cent to 42 per cent of your gross income
- Character - It’s an evaluation of all four previous C's as well as subjective and objective things such as how long have you been in your job, what type of job you have and how long you have lived in your current residence
But what can you do to improve your chances of getting your first mortgage approval? These five tips will help you in getting a mortgage and to get that final tick of approval:
Get pre-approved, but understand what type of pre-approval your broker/banker is performing.
Not all mortgage preapprovals are created equal, so it’s important to understand what kind of pre-qualification you’ve been provided. Whether or not the mortgage specialist has done credit checks and verified income and the source of your down payment could affect whether you’re approved in the final stages.
Bring in all verifiable information
Be sure to bring in a letter that states your income, pay stubs banking information that verifies the source of your down payment. Having that info all readily available will provide you with a pre-approval with less conditions (some say subject to satisfactory income or down payment verification.
Ask to have your banker/broker check your credit history
Not all bankers/brokers will do this at the preapproval stage. However, it could prevent you from getting final mortgage approval. So if you’re not sure, ask.
Build credit history, if you don’t have any
Turner recommends applying for an RRSP (Registered Retirement Savings Plan) if you’re in the soft stages of buying a home. It will appear on a credit report. That loan is going to create the down payment for you.
Avoid lavish purchases and job changes
Don’t run out and buy cars or run up credit cards before you buy a home because it will impede the amount you can qualify for. In addition, don’t change your job within six to eight months of buying, because a lender will look at that, but Turner says, depending on the industry you work in, if it’s a natural progression, it will be looked at differently.
Please also see the attachment for the Denova Group in Calgary for more information and tips on obtaining a mortgage. Contact Cory Vance or Darren Hartel for more professional advice to make your mortgage approval a smooth process.
Many new buyers are also unaware of the new down payment structure on homes exceeding $500,000 dollars. As of February 1st 2016 the down payment structure changed. Here is a basic breakdown of the numbers.
So what does this mean in real numbers?
Purchase price of $600,000
New down payment:
5% on the first $500,000 = $25,000
10% on the remainder $100,000 = 10,000
Total down payment $35,000 = 5.83%
Old down payment at 5% = $30,000
As you can see the increase is because it is a sliding scale and is not as bad as a 10% across the board change.
~By Randy Merkley~