Tuesday, November 17, 2015

Get Qualified for Your Mortgage In Advance

Are you an employee? Self-employed? Do you have good credit? What is good credit? Where are you looking to buy? Where is your down payment coming from? A gift from a parent? Have the funds been in your bank account for at least 90 days? Read more below if you are planning to buy a home in the next few years.

Qualifying for a mortgage in Canada depends on 4 main factors:
1) Stable Income 2) Good Credit 3) The Property and 4) Down Payment

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1. Income - Employee or self-employed? Part time or full time? 
  • If you are an employee you will need to have a letter from your employer stating your name, job title, start date, salary, and that you are a full time and permanent employee and a recent pay stub.
  • If you are an employee but you are PART-TIME you will need to have been at that job for 2 years and will need to provide your last two years Notice of Assessments from CRA. If you do not have the originals mailed to you, call CRA to order reprints or get your PIN to access your CRA account online. 
  • If you are self-employed I will need a copy of your last 2 years Notice of Assessments from CRA. Proof of business for 2-3 years: copy of business licenses, cert of incorporation + articles, and business financials.
  • If you earn cash tips, get spousal support, or disability income, or any alternative type of legal income, it is best to speak to a Mortgage Broker to see if there is a specific type of lending program that will allow these sources of income.
2. Do you have good credit?
  • What is your score? Above 630? Above 680 is ideal. But if you are above 630 it doesn't guarantee that you will be approved. Ie. Do you have missed payments or any credit cards or loans that are in R9 status (R1 is the best, R9 is the worst), or loans/cards written off by the bank, this may limit your borrowing ability.
  • Don’t worry if your credit isn't perfect there are programs available to you while you rebuild your credit. I have access to alternative lenders who lend at higher rates with a min of 20% down payment.
  • If you have poor credit I can help you make a plan to fix it. 
  • Lenders also require you to have credit history, so if you have paid off a credit card or line of credit please DO NOT CLOSE the account, otherwise this will show as not active. Lenders require 2 trade lines (credit card, loan, line of credit, etc) with at least 2 years active credit history in good standing and a min of $2000 limit for each trade line. 
3. Property - House, Condo, Townhome? Zoning? Strata? Freehold? Leased land? 
  • The property choice also impacts the mortgage qualifying process as the real estate is the lender's security, if for some reason you were unable to repay the mortgage. The mortgage lender will want to be sure that the property is in good condition and that if they needed to market the property it would sell quickly.
  • When you are putting down more than 20% a property appraisal is almost always ordered and involves a physical inspection of the property for the lender by a certified appraiser who assesses the condition and market value of the property to be mortgaged. (Ordered by your Mortgage Broker, buyers expense).
  • For all condos, townhouses, and all strata properties, lenders may need to see AGM minutes, SGM minutes, Form B, last 6 months strata minutes, deficiency report (if available), etc. 
  • Property zoning - if a property is not zoned residential it may limit the lenders who will lend on that property. It is best to share the zoning information with your Mortgage Broker to ensure it is ok.
4. Down Payment - How much do you have? Is it a gift? 
  • A minimum of 5% down payment of the purchase price is required.
  • If you have less than 20% down the mortgage lender will insure your mortgage against default and the premiums will be included in your total mortgage amount.
  • If you have a down payment of 20% or more of the purchase price this is known as a "conventional" mortgage and the mortgage lender will not require default insurance paid by the borrower, but some lenders still insure the mortgage and they pay the premium.
  • In some situations you can get down payment funds gifted from a parent (not a friend). 
  • Your down payment must be in your bank account for at least 90 days. Proof of funds will be required for any large deposits made in that 3 month period.
How much will you qualify for?
  • This depends on your assets, equity, debt and total household income. It is best to speak with a Mortgage Broker in advance to discuss your options. If you are planning to buy in the next few years speak to a Mortgage Broker today to plan ahead and ensure you have everything needed to qualify for a mortgage at the best possible rate. Planning ahead is always good, then if there are any credit score issues, you will have time to fix them before you are ready to buy. 
For specific advice on how much you will qualify for please call me anytime at 778.388.4240 or apply online for pre-approval at www.applytocleverlending.com.