In today’s mortgage lending environment, it is more important than ever before to be prepared if you are thinking about buying a home. We would like to review with you now the most important aspects of being ready for your mortgage.
Money Saved for the Down Payment & Closing costs:
Your mortgage lender will expect you to contribute at least 5% of the purchase price of the house in the form of your down payment. This money has to be from your own saved resources and cannot be borrowed. Sometimes a gift from parents or siblings is an acceptable alternative. In addition to the down payment, you should have another 2% to 3% of the purchase price in savings to cover legal fees and closing costs. Here's a quick video to help with this...
Good Credit history:
When you are applying for a mortgage, a lender will be very interested in your past credit history. They will want to see that you have borrowed money in the past and have repaid your debts in a timely manner. There are many aspects of developing a good credit score. For more detailed information, watch our video here
Typically a lender likes to see a 3-year summary of your employment history. Having a full time permanent job with a good income is important to a mortgage lender, and in this case, they will typically use your current income to support your application if you can confirm this by way of a letter from your employer and a recent pay stub.
If you are not a full time permanent employee, but are permanent part time, casual, earn commission income or are self-employed, you may also qualify for a mortgage. In this case, it is important to have a 2 to 3 year history of your earnings via tax returns and corresponding Revenue Canada Notices of Assessment so the lender can make a reasonable assumption of what your future earnings will be based on your past proven history.
Debt to Income Ratios:
Affordability is an important aspect of your application when lenders are deciding whether or not to lend you money to buy a home. Basically, no more than 32% of your gross income (before taxes are deducted) should be going to your housing payment (mortgage, property taxes and heat). So, if you earn a salary of $40,000 per year, that means that $1066 per month should be the maximum you are spending for mortgage payment, property taxes and heat. In addition to that, lenders also consider what you are spending for car loans, credit card payments etc. This can get complicated, but we can help with this…that’s what we do!
Contact us anytime…our Professional Services are paid by the lender and free to you!