- A pre-approval gives you a good idea of how large a mortgage you can afford.
- A pre-approval provides you with a rate guarantee for up to 120 days, protecting you from the possibility of rate increases.
- You can pre-qualify in minutes
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Your mortgage pre-approval will be based on the information you provide as well as your supporting documentation. Please be honest and straight forward with us, so that we can work together to get you pre-approved at the best rate and terms. Our job is to compare mortgage products and lenders on your behalf. As a mortgage broker we represent you as the client first.
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The five most important factors lenders consider when deciding whether to qualify you for a mortgage are your:
- Employment history
- Credit history
- Property value
When you understand how a lender will evaluate your mortgage application, it’s easier to see your own strengths and weaknesses as a loan applicant. A strong loan application will have:
- A household expense ratio (mortgage, heat, property taxes) no greater than 32% of gross income
- A total debt-to-income ratio no greater than 44%
- Steady income – ideally at the same job for two years or longer
- Good credit (bills are paid on time)
- The home’s value equals the price the buyer is paying for it
One of the first aspects a lender will consider is how much of your total income you will be spending on housing. This helps them decide whether you can comfortably afford the home in question. If the mortgage payment represents a large portion of your income, you are more likely to have difficulty making these payments because of your other potential expenses (vehicle, furnishings etc.). On the other hand, if the house payment represents a smaller portion of your total income, chances are better that you can truly afford the house.
When you are applying for a mortgage, the lender will consider your ‘gross income’. This includes all the money you earn before taxes, including overtime, commissions, etc. You must be able to show a stable history for these sources of income. For example, many lenders will consider income from a part-time or seasonal job as long as you are able to prove that you have had the job for a minimum of two years.
Another important thing the lender will do is compare your current housing expenses to the expenses you will have if you buy a home. The slighter the increase, the stronger your application looks.
In addition to your income, a lender will look at your debts. Your debts generally include your house payment, as well as other payments on loans, credit cards, child support, etc. that you make each month.
If you have a lot of debt, using equity from your home to consolidate your debt is a viable option that can also help you save on interest expenses.
A history of stable employment in any occupation improves the strength of your application. Lenders are more willing to lend money to those who have worked for a number of years at the same job, or at the same type of job. However, if you’ve only been in your current job for a short time, this won’t necessarily keep you from getting a loan, as long as you can show that you have had regular income over the last year.
The lender will confirm your employment, usually by asking you for a letter from your employer that is signed and states how long you have been on the job and how much income you earn. If you are self-employed, or have been at your job less than two years, the lender may request additional information from you, such as your federal tax returns, concerning your income and work history.
The sort of questions a lender considers when reviewing your mortgage application include:
- Have you had steady employment over the last two years
- Is the co-borrower (if any) employed?
- If either yourself or the co-borrower were to lose your job, how long would you be able to keep making your mortgage payments?
Having good credit is very important in qualifying for a mortgage. In addition to your ability to make your mortgage payments, a mortgage lender will also look at your willingness to pay. This will be judged by your credit history – in other words, how consistently you have paid your loans and other debt obligations in the past.
When you apply for a mortgage, the lender will request a credit report on your behalf. It’s a good idea to order a copy of your credit report for your own records before you apply. It will show your record of payments of whichever debts you have. If you have never had a loan or a credit card, you can prove that you have a good record of payment by providing your utility bills and history of rent payment.
The Property’s Value
When you choose a home, the lender will want to know that it is worth the price you intend to pay. In fact, the loan amount that the lender approves you for will be based upon the value of the property. The property’s value is a lender’s best assurance that they can recover the money they lend you if you were to stop making mortgage payments. Were you to stop making payments, the lender has the legal right to sell your home to pay off the loan – a process called foreclosure. The lender wants to know that the property could be sold at a price that will allow them to recover the loan amount.
Identity theft is a growing problem in Canada, both for individuals and for lenders. To ensure that no one is falsely using your identity to borrow money for a loan, Vertuity may ask you some questions about your credit history to confirm the information that’s on record with your credit bureau.
Now that you understand more about qualifying for a mortgage, pre-qualify in minutes with Vertuity Mortgage.