Do I Qualify For A Mortgage?

Many people wonder if buying a home is really within their reach. It often seems like a daunting purchase for the first time buyer. The good news is that with the large variety of options available today, it has never been easier to secure a mortgage.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

What Criteria Do Mortgage Lenders Use to Select Qualified Buyers?

Mortgage lenders assess a variety of criteria when considering mortgage applications. Most lenders look at the following factors when determining whether you qualify for a mortgage loan.

One of the first questions a lender will consider is how much of your total income you'll be spending on housing. This helps the lender decide whether you can comfortably afford a house. Mortgage payments for principal, interest and taxes generally should not exceed 30% of your gross monthly income.

A lender will then look at your debts, which generally include house payments as well as payments on all loans, charge cards, child support, etc., that you make each month.

A history of steady employment, usually within the same job for several years, helps you to qualify. However, a short history in your current job shouldn't prevent you from getting a loan, as long as there have been no gaps in income over the last two years.

Good credit is also very important in qualifying for a loan, and the lender will want to know that the house is worth the price you plan to pay.

The Importance of a Down Payment When Qualifying For a Mortgage

Down payments are not always required as there are mortgage programs that provide 100% financing for qualified purchasers. If you have a down payment of 20% or more of the purchase price, this is known as a "conventional" mortgage, and the mortgage lender will not require default insurance. However, with mortgage loan insurance to cover potential default of payment, you may be able to qualify for a mortgage with a down payment of as little as 5%.

When budgeting, also consider other monthly-related expenses such as condominium fees, heat, hydro, water, property tax, insurance and household maintenance.

How to Improve Your Ability to Qualify for a Mortgage

Now that you know what is typically required to obtain a mortgage, there are some ways that you can boost your chances of qualifying. The key to succeeding is to be patient and begin preparing at least two years in advance if you identified any trouble areas above.

First and foremost, you must begin claiming all of your income if you tend to under-declare to ensure that you will meet income requirements. Typically, a mortgage shouldn't exceed 30 percent of your income. Other ways to increase your odds of getting a great mortgage rate from premier lenders include:

• If you have excessive debts, go ahead and pay down any balances as much as possible to increase your credit score and earn points with lenders.
• Shoot for a credit rating of 680 or better to qualify for a conventional mortgage in Canada. Maintaining employment consecutively for two years is essential, ideally with the same company.
• Save up a bigger down payment than expected, or look into 100% financing or low-down payment programs that you may qualify for.

As you can see, with careful planning and smart budgeting, owning your own home is well within reach.

Even if you can't buy a home right now, home ownership is possible. If you make it a serious goal and plan for it, within two years you can probably overcome most or all of obstacles that usually face first time buyers

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.