Mortgage Tips

Five tips for getting approved

Applying for your first home loan is a little like opening up your underwear drawer to strangers. You can take some of the unpleasantness out of the process by knowing what lenders are looking for.

According to John Turner, director of mortgage sales at BMO in Toronto, Canadian lenders use the five C’s of credit when assessing your ability to pay back a mortgage.

    Credit history. Your lender will want to make sure when you’ve borrowed money, you’ve paid it back
    Capital. Ensuring you’ve accumulated assets
    Collateral. When it comes to a mortgage, you’re putting your house up as collateral
    Capacity. In short, capacity is debt servicing. For instance, your housing cost shouldn’t exceed 30 per cent to 32 per cent of your gross income and all of your debts shouldn’t exceed 40 per cent to 42 per cent of your gross income
    Character. It’s an evaluation of all four previous C’s as well as subjective and objective things such as how long have you been in your job, what type of job you have and how long you have lived in your current residence

But what can you do to improve your chances of getting approved? These five tips will help you get that final tick of approval:

Get preapproved, but understand what type of preapproval your broker/banker is performing
“Not all mortgage preapprovals are created equal, so it’s important to understand what kind of prequalification you’ve been provided,” says John Turner, director of mortgage sales at BMO, in Toronto. Whether or not the mortgage specialist has done credit checks and verified income and the source of your down payment could affect whether you’re approved in the final stages.

Bring in all verifiable information
Be sure to bring in a letter that states your income, pay stubs banking information that verifies the source of your down payment. “Having that info all readily available will provide you with a preapproval with less conditions (some say subject to satisfactory income or down payment verification),” says Turner. “Get all that stuff out of the way, so it’s one less thing to worry about.”

Ask to have your banker/broker check your credit history
Not all bankers/brokers will do this at the preapproval stage. However, it could prevent you from getting final approval. So if you’re not sure, ask.

Build credit history, if you don’t have any
Turner recommends applying for an RRSP if you’re in the soft stages of buying a home. It will appear on a credit report. That loan is going to create the down payment for you.

Avoid lavish purchases and job changes
Don’t run out and buy cars or run up credit cards before you buy a home because it will impede the amount you can qualify for. In addition, don’t change your job within six to eight months of buying, because a lender will look at that, but Turner says, depending on the industry you work in, if it’s a natural progression, it will be looked at differently.