Working with a mortgage broker is a different experience than working with a bank specialist. It’s also a different part of the home buying process compared to working with your Realtor. Some people may have never worked with a mortgage broker before and don’t know what to expect. Because of that, there are some questions…Read Article
7 Tips to Get Approved Easily for a Mortgage in Canada
Buying a home is one of the most exciting things you may do in your life. It’s one of the larger life purchases and can take a bit of time to make happen. In this article, I’m going to share 6 tips on how to get pre-approved for a mortgage in Canada.
Let this be your guide book on understanding how best to qualify for a mortgage.
Save a larger down payment.
Saving up for the down payment for your home will be the most important part of your mortgage process. Without a down payment, you won’t be approved. So, it’s important to begin saving up as soon as you can.
To help you better understand how much of a down payment you’ll need, follow these points.
- Less than $500,000: The minimum down payment is 5% of the purchase price.
- $500,000 to $999,999: You’ll need 5% of the first $500,000, and 10% for the portion of the purchase price above $500,000.
- Over $1 million: 20% of the total purchase price at minimum.
In Canada, a down payment of less than 20% of the home’s purchase price requires the buyer to buy mortgage loan insurance. With paying these, your monthly payments will increase.
You can also use a gift for a down payment as well. I wrote a full article of getting a gift payment for your home. Check it out here and learn more about receiving gifts and who you can receive them from.
Keep your income stable while applying for a mortgage.
The next important thing to keep in mind when applying for a mortgage is to keep your income stable. While you may feel like starting a new job or going self-employed, don’t do it at this moment and keep your day job!
A lender approves you for a mortgage if they believe that you are able to make payments. Staying at your current job will help the lender feel secure, especially if you’ve been working there for a long time.
If you are starting a new job, you will have to wait until you’re off probation to use that income. And, if you’re self-employed, you will need two years of tax history of self-employment to be able to use that income. There are exceptions to probation and being self employed for less than two years for specific applicants with a stronger profile.
Pay off current debt and do not add any new debt while applying.
Once you get a mortgage, you will be in for some long-term debt. Because of this, it’s important to pay off the current debt you are in. Existing debt also makes it harder to get approved for a mortgage, so the less debt you have, the better of a chance you have for approval.
On this topic, it’s important to not add any new debt to your portfolio while applying for a mortgage. This includes new car payments, trailer RV loans etc. If you’re considering any big ticket purchases that include financing, please reach out to me first to discuss how it will affect your mortgage process.
Figure out and Improve your credit score.
In Canada, credit scores are between 300-900 and are scored within 5 categories. Poor, Fair, Good, Very Good and Excellent.
The exact categories vary based on which credit bureau is being used. This is important to note because if you use various credit pulling websites, your score will be different from what I will pull when I do your credit score within the programs that I do use.
Your credit score is a snapshot of your overall financial health and it’s important to understand where you stand.
Banks will want your credit score to be between 620-650 or above when getting approved for a mortgage. But, it’s recommended to have 680 or above when applying for a mortgage. They will also put into consideration whether you have any collections in your name.
If you’re working your way towards 680 or above, here are some ways to do it:
Whenever your credit card company offers you a credit increase, it’s important that you take it. Accepting the credit limit will allow your credit score to improve because your debt ratio grows smaller with the amount of credit you have available. If you continue to pay it off monthly.
If you don’t have a credit card but you have shown a long history of having a line of credit and a loan or several loans with a great repayment history, this normally works too. If you’re looking for more information on credit scores, check out my article “Building Your Credit Score.”
Speak to a broker to determine the type of mortgage.
When it comes to mortgages, it can be a little confusing. What amortization should I go for? What about finding a good interest rate? Variable or fixed? It can feel overwhelming and hopeless, but I’m here to tell you that I make it extremely easy to understand.
When you speak with me, you will provide me with all of your information and history. I’ll provide you with the different mortgage options available and we will determine together which route to go down is the best for your situation.
As a mortgage broker, I work for you and am here to help you figure out these things.
Collect all documents the mortgage broker will need.
Once we discuss your situation and determine more of what you’re after, I will ask you to collect all of the documents that I will need to approve you. If you want to be keen and have everything ready for when we talk (which I appreciate and makes the process faster and more seamless), here’s what I will need:
- A recent pay stub
- A job letter on a company letterhead (if you’re an employee), stating your position, salary and hours you work
- Possibly T4’s from the last two years
If you’re self-employed, I will need:
- Two years of experience being self-employed (Depending on your situation, there may be wiggle room on this.)
- Two most recent tax returns and notice of assessments.
To fully understand the pre-approval process, I wrote an article about what it means to get pre-approved by a mortgage broker and some examples of a mortgage pre-approval.
Determine what type of home you can afford.
Once we have you pre-approved, you will be able to determine what type of home you can afford with your mortgage approval. Whether you can afford a condo, townhome, family home or acreage. It will all depend on your approval and how much the monthly payments will be and whether or not you can afford them.
The most important thing is being able to afford your mortgage payments because if you can’t, you could come into a foreclosure.
Start the process today.
I hope this article helps you understand the approval process and what you can do to better your chances! If you’re ready to get approved for a mortgage in Canada, reach out to me today. Give me a call at 250-826-3111, fill out my contact form or go through my pre-approval form on my website. Whatever way you contact me, I’ll be in touch with you soon!