Important Factors to Consider When Applying for a Mortgage

Unless you’re paying for your new house in cash, you will likely need to apply for a mortgage. There are many important factors to consider when you make an application with mortgage providers.

Your Earnings

To qualify for a mortgage, you need to have a reliable source of income. Your income can come from several sources, including your salary, child support, or stock dividends. If you are self-employed, it’s usually a more complex process as this line of work is generally labelled as unreliable and inconsistent. However, if you can provide consistent payslips showing earnings from the past three or more years of being self-employed, you are more likely to be accepted for a mortgage.

Proof of Income

Mortgage lenders will require proof of earnings. They need to know that you are reliable and that you can afford the monthly mortgage repayments. For this reason, you will be asked to present proof of income via a number of documents, including

●       T4

●       CRA Notice of Assessment

●       Employment letter

●       Pay stubs

Failure to provide the above documents might lead to your application being rejected.

Credit Scores

Credit scores play a major role in whether or not you will get approved for a mortgage. Generally, a credit score of 660 or above is ideal. Anything below this is labelled as subpar. A lower credit score makes it more difficult for you to succeed in getting a loan, and if you do, your interest rates will be higher.

Deposit Payment

If you successfully get approved for a mortgage, you will be required to make a down payment. Deposits are usually anywhere between 5 to 20% of the total cost of the property. The higher your deposit, the more equity you will initially have within your new home.

 

photo-1567427017947-545c5f8d16ad

 

Existing Debt

Mortgage lenders will consider the amount of debt you are currently in and compare it to your income. They use a 38/42 ratio. The former represents the amount of your income allowed for monthly housing expenses before tax. The latter represents the amount of your pre-tax income that can go toward recurring bills like direct debits and credit card debt.

Interest Rates

Interest rates vary depending on the current housing market and your unique credit profile. Choosing a fixed-rate mortgage means your interest rate will also stay at a fixed price. If you opt for an adjustable-rate mortgage, expect your interest rates to change over time.

Closing Costs

Many mortgage lenders will charge a one-off closing cost. The cost covers administrative fees and expenses to obtain your credit report or references. On average, closing costs will be anywhere between 2-5%. Be sure to ask your lender about their specific closing fees, so no unexpected payments pop up towards the end of the process.

When you choose a new house to buy, always consider your income, savings, and the likelihood of getting a mortgage.