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How to Qualify for a Mortgage

Income Requirements

You are allowed 30% of your gross income for a mortgage payment and 10% for personal payments. Your total debt payments can not exceed 40% of your gross income. If your personal payments are less than 10% of your gross income you are still only allowed 30% for mortgage payments. Some mortgage lenders may allow slightly higher than 30% but will take into consideration the utility payments of the home. If you purchase a home with a legal suite the revenue from the suite can be used to obtain a higher mortgage. Every $100.00 of suite income qualifies you for an additional $5000.00 of mortgage. (this varies with interest rates).Unauthorized or illegal suites do not qualify for a higher mortgage. The lender will require a letter from your employer verifying your income and length of employment.

Salaried Employee

You should have a minimum of 6 months at your present job and provide a 3 year employment history. As long as you remain in the same line of work, changing jobs is not usually a problem.

Hourly Employee

You will be required to be employed at your job for a minimum of 3 years if you work 37-40 hours per week and use overtime as part of your income

Commission or salary plus commission employee

You will be required to supply the mortgage lender with your income tax notices of assessments for the previous 3 years. It is usually required that you have been working with the same employer for a minimum of 3 years in order to establish a track record.

Your Employer pays a Bonus

If you receive bonuses for your work you will still have to establish a track record. The lender usually requires your income for the last 3 years to do this.

Part-time or Casual Employee

This will depend on your occupation as to how long you need to be with your present employer in order for your income to be used to qualify. It could be as little as 3 months or 3 years, your lender will be able to assist you as to your qualifications.

Self-employed

You will be required to produce income tax notices of assessments for the previous 3 years. If you have a minimum of 25% down and an excellent credit rating, some lenders may not require income verification but you would have to pay the posted interest rate. Consult with your lender to see what options are available to you.

How important is your Credit Rating?

An excellent credit rating will help you qualify for a mortgage and it may also qualify you for a discounted interest rate. You can maintain an excellent credit rating by making your payments on or before their due dates. Late payments lower your credit score on your rating making mortgage approval difficult if not impossible.

You have encountered financial difficulties

If you are unable to make your payments on time because of financial problems notify your lender immediately of your situation. If you are honest with them they usually will work with you through this difficult period. If you just quit making payments without notifying them why, they will register your missed payment with the Credit Bureau.

Check your Credit Rating

It is a good idea to check your credit rating before you apply for a mortgage. The information in your credit file is used to give you a credit score rating which indicates the likelihood of you repaying your debt. There is no charge to request your credit report and it takes 2-3 weeks to receive it. There are 2 agencies you can contact for your credit information. They are Trans Union of Canada Inc. and Equifax. You can access the request forms from the internet. When you receive your report, check it for any discrepancies, mistakes can occur, so accessing the information before you apply for a mortgage will allow you to correct them.

You don’t have a Credit Rating

In order to establish a credit rating you will need to borrow money. This can be done by opening a charge card, using it on a regular basis and making the payments on time.

Amount of Down Payment required

Most properties require a minimum 5% down payment. It is now possible to borrow the down payment as long as your income can support this payment as well as the mortgage payment. Some lenders will allow you to purchase a home with zero down but will require you to have stable employment income as well as an excellent credit rating. The interest rate however may be higher than the conventional way. Contact your lender for particulars.

Make your Offer conditional

Even if you are pre-approved for a mortgage it is advisable to make your offer subject to you obtaining mortgage approval. Your lender will still have to approve the home you have purchased. If you do not make your offer conditional to financing there could be legal ramifications if you were unable to complete the sale.

Free Mortgage Consultation

Before you purchase your real estate property, you need to know how much a mortgage you qualify for. You also will want to get the best interest rate and the most favorable terms.
A mortgage broker has access to many lenders and is able to offer the best interest rates and terms from a variety of conventional and private sources.

 

 

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