Mortgage Qualifying

Here are a few suggestions to set you up for success in qualifying for a Mortgage.

Lenders look at 4 things: Income, Credit, Down Payment, and the Property.

Income:

Full or Part Time Permanent Income (not on short term contract), with salary, or guaranteed hours, and off probation, is what they like to use.

Non-Guaranteed and Self-Employed income, they want to see two years of history in that same position. They will look at tax returns so they can see what you claimed and that you have paid your income taxes, and to also ensure you have been doing the same line of work. They will use a two-year average at that point if the income is increasing each year, otherwise they will typically use the income from the most recent year, which is lower, for running the qualifying numbers.

Credit:

Lenders like to see two active trade lines for at least two years. If you only have one credit card in your name, I suggest getting a second credit card. Good if each of these cards have a minimum $2,000 limit. Use it occasionally and pay it off before the statement due date to avoid paying interest. Just be sure to keep the balance below 50% at any time within the two months before qualifying so it does not hurt your credit score. This is because all cards report at different times within a 30-day period on your credit bureau, so when we pull your credit it may show a balance you had on the card 20 days ago (not today) for example.

If you only have one credit card, once it is past a year old, we can use other things such as utilities in your name, and rent, and car insurance paid monthly to help prove up your credit. But the easiest is to have two credit cards, then you will always have two tradelines reporting. If you want to pick up a third credit card for some reason, do not close one of the other ones until you have had that third one for two years, so you always have two cards with at least two years history.

Down Payment:

Lenders look back 90 days in your down payment bank accounts to verify your down payment. They want to see if any of the money is new money within the past three months. If any of the down payment came into the account(s) within those three months, where did it come from? If it came from your regular income (paycheque), no problem. If it came as a transfer from another account, they want to see a 90-day history of that account as well. Whatever account that money has touched in the past 90 days gets brought into the equation, which can create a lot of paperwork to trace the money movement.

If it came as a gift, it must be from an immediate family member (mother / father / brother / sister / son / daughter / grandparent and aunt / uncle on exception). If you sold something, and that money is making up part of the down payment, they may require proof via a bill of sale, if it is over $1,000. If it came from cash you had sitting around at home, they will not consider that portion. You would have to wait for that cash to be in your account for at least 90 days to be able to use it as proof for down payment. This is a way for them to mitigate fraud and money laundering.

Typically, once you prove you have the down payment, it does not matter if you use other money for the actual down payment, because you have proven you have the money to cover it. If you are using RRSPs or gift money, they usually want to see that money put into your account. Also, RRSP money must seed (be in your RRSP account) for at least 90 days before you can pull it out for the First Time Home Buyers Plan.

If possible, when you know you are about 4 months out from getting qualified for a mortgage, be sure not to move money around too much. Put it all into one account at least 90 days out and let it sit there, that is the easiest for paperwork. Also, keep the transactions in that account during those 90 plus days to a minimum if possible.

Property:

This is the lender's security. If you stop paying them and they get stuck with the property, they want it to be easy to sell and for more than the money you owe them. They only get to take from the sale what they are owed, and the costs incurred to get their money back. Any extra goes to the next person in line. If they are the only one owed money registered on the title of your property, then the rest would go to you. The courts also make sure they sell it at a fair value.

But the lenders do not like going through the process, they just want to make sure if they do, the property is not hard to sell. You also do not want to go through that process because you could probably have sold the property for more, not had to cover the legal costs the lender incurred to put you through the process, and now your credit is bruised, and future borrowing will be more difficult and costly for you.

So, when looking at properties, remember the more unique they are, the more of a fixer upper they are, the further out from a town they are, and the larger they are from normal (or smaller), the narrower the lender choices become.

To sum up:

Income - guaranteed income or two years income with tax history in the same career position - Good.

Credit - two credit tradelines with two years active history with at least $2,000 limit and balance below 50% - Good.

Down Payment - in one bank account for over 90 days (preferably without much other activity in it) - Good.

Property - 'normal' and in good shape and the Offer to Purchase is at a fair value - Good.

Make sense?

If your situation is outside of these parameters, as a broker we do have access to a lot of different lenders out there, so we work to make it fit somehow somewhere. But if you follow these guidelines above, this is the easiest way to qualify and have the most choices for lenders and terms and rate.

If you have any questions contact us to discuss your plans, as there may be many options available to you.