What Do I Need to Qualify for a Mortgage?
Lenders and banks typically look at 4 main areas. The stronger you are in each
area, the increase in the likelihood of qualifying. I'm happy to advise on specifics moving forward
once you have applied. Here's a quick summary of what you need to know.
- Income - Depends on how you
earn your income, length of time in the same industry and being able to
show it on paper. 2 years minimum is preferred. See below for specific income types.
- Credit Score - Ranges from
400 to 900. To qualify for a mortgage with less than 20% down, you need a
minimum beacon score of 600 to 620. From 680 to 700 or above, your score
is excellent and you qualify for all products available. An important
factor is to ensure you have at least two trade lines (car loan, credit
card, lines of credit, personal loan, etc) for a minimum of 2 years.
That helps establish and show that you are able to pay your bills on time over a longer period.
- Down Payment - They range
from 5% and up. Cash back products are available but they are not to be
used directly for the down payment. Typically they come with a higher
rate and can be clawed back (or owed back) if you break your term early.
The bigger the downpayment, the less insurance premium you pay. If you put 20% down, you avoid CMHC and insurance premiums altogether and have
access to even more mortgage lending options. Down payment can come from
gifts (in most cases), Investments, RRSP's, Inheritance, a confirmed sale and a few others.
It's important that you can prove the source on paper. Typically
lenders want to see 3 month bank statements or investment history to see
where your down payment is coming from.
- Qualifying Ratios - This
takes into consideration your entire picture. Your income, compared to
your debts, heating costs, taxes and other monthly obligations.
Depending on your credit score you can qualify anywhere from 40% to 44% of your
gross income, compared to your Total debts. In other words, you can't
borrow more than 44% of your gross income every month. This ensures that
you can afford all of your payments. Our computer software programs
take everything into consideration with a variety of factors to
determine what you qualify for and we explain the process as we go through it together.
What type of income are considered and what paperwork do I need for each?
situations lenders require a comfort level that the borrower has
sufficient income and cash flow to service the mortgage as well as any
other monthly debts and obligations. The following is
a summary of what Lenders require depending on what type of job you
have. Please note that every deal is different and exceptions can be made below depending on your unique situation.
Job Letter - Should be on company
letterhead, signed by Human Resources, Supervisor or appropriate
individual, indicate your position, rate of pay and length of time at
employer. If you are a recent hire,
the letter should confirm that probation period has been passed.
Bonuses, car allowances and other forms of remuneration should be
mentioned if applicable.
- Pay Stubs - Most lenders will require a recent pay stub.
Financial Statements of Company - 2 years average of net income used. Depending on Lenders policies,
the add-back of various personal expenses run through the company may be
allowed including Amortization, CCA (Capital Cost Allowance), Business
Use of Home and Motor Vehicle Expense.
Overtime - Will be used as long as there is a proven track record - 2 years evidence (T4's).
Bonuses - 2 yr track record required.
Part-time Job - depends on length of time at job and if guaranteed permanent hours.
Tips - generally not recognized unless declared for tax purposes.
Alimony and Support - Evidence that payments have been made regularly and a copy of seperation
agreement is required. Investment Income - must be received
continuously. This source of income is limited to interest, dividends or
some type of ongoing revenue.