There are four elements that mortgage lenders take into account before they grant your Canada Mortgage application. Your income is a vital consideration. The lenders also look into your credit history. They also review the property to be mortgaged. The Down payment is another factor.
Regardless of whether you are employed or self-employed, having a stable income is very important. In fact, it is the first thing that mortgage lenders want to know. If you are self-employed, the mortgage lender will require you to present a certificate of employment along with the last two months of pay slips, and Notice of Assessment Forms from Canada Revenue Agency.
The purpose of the Notice of Assessment Forms is to authenticate your claim of regular income and tax payments. Besides the documents, the lending institutions will also have an authorized person to call your office and confirm your employment.
Having a regular income is not sufficient information. The mortgage lenders will discern your capacity to pay the dues if ever you are approved of a mortgage loan. The decisive elements are your employment history, number of dependents, monthly expenses and other expenditures.
Generally, mortgage lenders use a formula to determine how much of a mortgage you can be approved for. Two elements come into play for you to qualify for a Canada Mortgage, namely, the Gross Debt Service Ratio. GDS, and the Total Debt Service Ratio, TDS.
The percentage allotted for your monthly sustenance, payment of property taxes, and principal and interest of mortgage are what constitute your GDS. Simply put, it gets the greatest percentage from your gross income. To be approved for a mortgage, make sure that your GDS is below 32% of your total gross income.
The maximum amount of your gross income allocated for GDS constitutes your TDS. It sets aside money for payment of utility bills including credit cards, all types of loans and other disbursements. To ensure approval for Canada Mortgage, your TDS should be within 40% of your total income.
The mortgage lenders also review your credit score. In fact, whenever the subject is about loans and finances, the credit history is an essential consideration. If you are not sure of your credit standing, there are websites that offer free services to calculate it. If your credit score is imperfect, you can use the programs created for re-building your credit history.
The selection of real estate property subject for mortgage is another crucial element. To qualify, choose the house and lot that use quality materials. The appearance and physical attributes of the property matter to the mortgage lenders. Mostly, they initiate a property inspection.
The logic behind this is the fact that the real estate property is the sole security of the lenders. Naturally, the lenders become wary of the physical condition of the mortgaged home. They want to ensure that in case of default, the property can still be re-sold. To accomplish this, a property appraisal is initiated prior to the approval of Canada Mortgage.
The down payment has the least importance mainly because there are mortgage programs that guarantee financing as much as 100% of the total purchasing price. But, if you have the financial resources to provide 20% or more of the overall purchasing value, then the Canada Mortgage lenders will not require default insurance.
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