- Your credit history
- Your gross income (income before deductions)
- Monthly debts you currently have
- Your employment history
- The property that you want to purchase
Credit– Having good credit is one of the most important things when you are trying to apply for a mortgage. You will build your credit by having loans, credit cards, etc. (trade lines) so it is imperative that you start building it is as soon as possible as lenders will want to see a minimum of 2 trade lines for 2 years. Here’s another catch…you must make monthly payments on time! I know some people are scared to even get a credit card as they think they will rack it up so they just don’t bother. The thing is that you need to show a history of making monthly payments and they use your credit bureau as proof of this. If you are worried about over spending my suggestion is to get the card and for example; have your cell phone bill charged to the card and pay the credit card every month instead of the cell phone provider. This way you can tuck the card away and have it build your credit for you while avoiding the fear of “binge shopping”. Remember that you will want 2 trades so if you don’t have any loans or lines of credit then it’s a great idea to get 2 cards. As far as limits they like to see a reasonable limit so if you get asked if you want an increase take it but remember to not go too crazy high on the revolving debt …it’s all about balance! If you are short on the trades and only have one sometimes a lender may look at an alternate monthly payment such as hydro, autopac, etc. so it’s a good idea to have things in your name.
Income and Debts – I decided to combine these two as they somewhat go hand in hand. Your monthly income and the amount of debt you have is very important. Do you have enough income coming in to support the household payments (GDS) AND your other monthly obligations (TDS)? This is something your Broker can determine for you. We use your GROSS income from your paystub. If you have varied hours and income, then we need to see your T-4’s or Notice of Assessments and/or tax returns if self employed. GDS – Gross debt servicing is your monthly income divided by the monthly mortgage payment plus property taxes (PIT), plus heating. TDS- total debts serving is the GDS plus your other monthly obligations (credit card payments, loans, lines of credit, child support, etc). This is why we always say…don’t go buy that fancy new vehicle until AFTER you get the house! While the new expensive vehicle is a great to have…you can’t live in it.
Employment – It really helps if you have a history of continued stable employment, which means usually within the same job for a few years. However, a short history in your current job shouldn’t affect your chances from getting a mortgage if there hasn’t periods of no income over the past few years. If you have just switched jobs but you are within the same field of work or industry, then that will help. With that said, they like do like to see that it’s a permanent position and preferably not on probation.
Assets – While not always a must if everything else is really strong, it is important to try and have some type of assets…A car, Investments, and/or some savings in your bank accounts can really add strength to the overall application.
The Property – They will also want to know that the house you plan to purchase is worth what you have offered and keep in mind location and condition of the home can also affect the lenders decision to mortgage the property.
If you are thinking of purchasing a home in the near future, even if you are thinking 2-3 years away, prepare ahead of time and make an appointment to see a Mortgage Broker. This way, if any of the above need to be worked on your Broker can prepare you ahead of time ensuring your application will be solid when you are ready to purchase. We are here to help and it’s only about an hour of your time to prepare for the biggest purchase of your life!