Buying a home is one of the biggest decisions you will make. Understanding each step of the mortgage process is key to ensure this decision is right for you. Applying for a mortgage is the biggest step in the process. It can sometimes seem stressful, but it is easier if you are prepared. Here are 5 ways to help your mortgage application approved:
How to Get Approved for a Mortgage
1. Know Your Credit Score
Mortgage lenders uses your credit score to determine your financial trustworthiness and ability to pay your debt. Credit scores run from 300 to 900 in Canada. You want your score to be at least 660. However, the higher your credit score, the more likely you will be offered the lowest mortgage rates. Aside from your overall numerical score, your credit report includes information about late payments, overall debt levels, number of accounts open, and length of credit history.
2. Save A Larger Down Payment
If you are looking to buy a home, be ready to cough up the cash. The larger your down payment is, the better, because the less you will need to borrow, the less interest you will pay, and the more likely you are to get approved by a mortgage lender. You should have a down payment of 20% of the home’s purchase price. If you have less than 20% purchase, you are required to buy mortgage loan insurance, which will increase your monthly mortgage payment.
3. Keep Your Income Stable
When you are applying for a mortgage, it is important to keep your income stable. Mortgage lenders will not approve your mortgage application without proof you can fulfill your payments. The best way to prove that is a full-time job, since it guarantees your income long-term.
If you are a freelance or employed on a casual basis, you should look for a permanent role while you finish your application. This can help you get a great mortgage with a low rate to save you tens and thousands of dollars.
4. Pay Down Existing Debt
When you take on a mortgage, it means taking on long-term debt. Therefore, you will want to pay down your existing debt. It will be much easier paying your mortgage if you do not have other debts. Having existing debt will make it difficult to be approved for a mortgage. Mortgage lenders will look at your debt-to-income ratio when considering whether or not to lend to you.
5. Get A Mortgage Pre-Approval
Getting pre-approved for a mortgage is when a mortgage lender evaluates your financial situation and pre-approves you for a set mortgage amount, interest rate, and term. They are typically valid for about 90 to 120 days. Mortgage lenders will consider your income, assets, liabilities, credit score, employment status, debt-to-income ratio, and the size of your down payment. Getting a mortgage pre-approval is a good thing to have because it allows you to look for homes within your price range.
