What Are Lenders Looking For?
For most, knowing what a mortgage lender asks for before applying is completely unknown, which is understandable.
It’s not a subject people are usually eager to talk about, so everything is left for when the time comes to get a mortgage.
On the flip side, lenders deal with mortgages regularly.
At James Smythe – Dominion Lending Centres Central our goal is to help you with top mortgage advice and tips.
They go through applications and approve or decline people for a mortgage daily, so they know which areas to analyze to determine if a person is creditworthy or not.
If you want to apply for a mortgage yourself, it’s useful to know which of these areas are, so today we will go through some of them and explain how and why they are important for lenders.
A Stable Income
Mortgage lenders prefer giving loans to people who are regularly employed.
This is because of the simple fact that it gives them the guarantee that the loan applicant has a stable, regular income they can use towards making regular mortgage payments.
The industry you’re currently working in and how long you’ve been actively employed with your current employer also play a critical role in your financial stability.
The amount you earn per month should be sufficient to cover the mortgage repayments, and consistent every month to guarantee that you will be regular with your payments.
Lenders – like Dominion Lending Centres – often face the issue of how to adequately categorize and asses bonuses, overtime compensations, and commissions.
They can’t be considered a regular income since they aren’t guaranteed every month, but they are still a significant source of income, especially if they comprise a bigger percentage of the applicant’s total income.
The best solution lenders use for this is to request 2 years of tax returns to check how much income you’ve had in the last 2 years, where it came from, and how it was structured.
Equity is how much of your home you actually own.
You may think that you own the whole house because that’s what you paid for, but this is not the case if you have an active mortgage.
Why do I say that?
Well, if you have an outstanding mortgage debt of $300,000 and your home is worth $500,000, you only own the $200,000 you’ve paid so far for the house.
This is your home equity, the value of the home you currently own. The remaining equity belongs to the bank.
When it comes to a mortgage loan, your home equity shows lenders how financially stable you’ve been and how much of your home you have currently paid off.
The required down payment can vary depending on the property you want to buy, your finances, and other characteristics lenders see from your application.
Usually, the required down payment is a minimum of 5% of the total property value, but if you use it as a rental investment or don’t want to pay a mortgage default insurance, the required down payment can go as high as 20%.
Keep in mind that the higher the down payment you pay is, the lower the remaining loan amount will be.
Credit Score and Credit Max
Your credit score is a display of how responsibly you’ve handled your finances in the past.
It shows lenders your past loans, if you’ve been regular with your card payments, and if you have any outstanding debts at the moment.
In Canada, credit scores are typically ranked between 300 and 900. To be considered for a mortgage, lenders prefer to see a score of 680 and above, but having a score lower than 680 can also make you eligible for a mortgage. It will, however, come with a higher interest rate.
Regardless of the case, lenders will still check all the details and paperwork in your application to determine your score.
Your credit score is determined by several factors, but the main two are:
- How regular and prompt you are with bill payments
- The ratio between your credit balance and credit limit
The Type of Property You’re Buying
Finally, the type of property you’re interested in is also a point of interest for mortgage lenders.
The number of condo constructions in Toronto and Canada keeps increasing, but most lenders consider them as single-family properties.
If they are not considered as such, the lender will research further into why it’s so and how to classify them.
How To Be The “Perfect” Mortgage Client
If you want to be viewed as creditworthy by lenders and given a mortgage easier, you should work towards on the five aspects we mentioned above.
Lenders are interested in them the most, so it would be good if you present the following:
- Be employed with the same company for the last 2 years or longer
- Show 2 years of stable income in your tax return forms
- Have enough savings in your bank account to cover the down payment
- Pay your bills regularly
- Maintain a low debt
It’s rare that mortgage applicants have a score of 900, but it’s neither needed or required to have it.
You will be approved for a mortgage if you show you’re reliable and know how to handle your finances, even if your credit score is lower.
If you need help getting familiar with the whole mortgage application process, preparing the paperwork, and getting advice on how to improve your credit score, you can always hire a mortgage agent.
A mortgage agent is an experienced professional that knows mortgages inside and out and can give you some invaluable advice on how to prepare the application so you can get a mortgage easier and faster.
We are dedicated to giving you the most helpful mortgage advice and giving you the best mortgage service, no matter what your needs are.
As specialized mortgage agents, you can be sure that we have the solution for you that will take away all of the stress and get the best mortgage product for you.
Get started today by applying online – it’s free and takes less than 90 seconds. Apply here at: https://www.goodadviceforabetterlife.ca/application/