Mortgage Blog

How do I Qualify for a Mortgage?

January 9, 2019 | Posted by: Laurie Anne Faulkner

How do I Qualify for a Mortgage?

In Canada, if you have good credit, a permenant  income, a minimum down payment of 5% and the property you choose qualifies to the lenders guidelines you are well on your way to qualifying for a mortgage and a new home!.

All of these factors will help determine what mortgage options and rates a lender will offer to you to purchase your new home. If one or more is not inline, financing can be more difficult.

Credit: A lender will always look at your credit history when determining if they will lend you funds for a mortgage.  Most lenders look for a credit score of 680+ however some will accept lower scores depending on the strength of the rest of the application.  If you do not have a credit score, you will need to apply for at least one credit card as soon as possible to start building this up.  Please look at the credit bureau page as there are many factors to building and more importantly “Keeping” your credit score high so that you can qualify for the best rates and products available at the time .

Understanding Your Credit

Income: Most mortgage lenders will required a letter of employment confirmation as well as recent pay stubs and may call the employer for employed or salaried applicants to verify income, while self-employed applicants will need to provide among other documentation their last two years Notice of Assessment from Revenue Canada show whether any taxes are owing.  The lender may also call the  employer to confirm the details in an employment letter.

Accessing Your NOA

Down payments: The lender requires some form of your own funds to be used to purchase a home- this is called your equity in the property. If you have less than 20% down payment (or equity) in the property, your mortgage will be “High Ratio” and the mortgage lender will insure your mortgage against default with mortgage default insurance provided by either CMHC, Canada Guaranty or Genworth.  This premium is added to your mortgage so you do not need to come up with the cash to pay it.  The funds for the downpayment need to be from your own funds and not 'borrowed' however a family gift can be used for the down payment as well.

If you have a down payment or equity of 20% or more of the purchase price, the mortgage will be considered as a 'conventional' mortgage, and the mortgage lender will not require default insurance and related premiums.  You will also need to show the lender that you have funds available for closing cost  – usually estimated at 1.5% of the purchase price ( less if you are 1st time buyers qualifying for the property purchase tax rebate).

Property: The mortgage lender will also want to guarantee that whatever property you choose is in good condition and the vlue is there.  This ensures to the lender that in the event of foreclosure and they had to put the property on the market it would sell quickly. Even after you have been pre-approved, the property once found will still need to be “approved”.  The lender will order an appraisal to verify that the value is there- this protects both you and the lender.  With a high ratio file, the lender may use an auto-evaluation, but with a conventional file (un-insured) they will always order a full physical inspection of the property by a qualified appraiser.

Mortgage Loan Insurance

Getting Pre-Approved

Getting pre-approved will help you determine if you qualify for a mortgage, how much you can qualify for and more importantly, how much you can afford. If you qualify for a pre-approved mortgage, you’ll be certain of the size of mortgage for which you qualify as well as the rate which is guaranteed for a specific period of time.

Pre-Approval for Your Mortgage

For advice on how much you qualify for and to get a 120 pre-qualification rate hold, call me or email me anytime – Laurie Anne Faulkner 250-588-2288

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