How To Get Approved For A Mortgage

Many young couple dream to have their first property and become homeowner. However, when it comes down to request a mortgage in order to buy the dream of their life, they are left in the hand of the “evil” banker

They don’t really know what to expect, which question to ask and how to negotiate their mortgage (and what to negotiate because there is much more than only negotiating your rate!). This post is about what banks consider before lending money for a mortgage. Therefore, you will be in a better position to get approved for a mortgage after reading this article (hopefully!).

Cash down

One of the very first things to look at is your cash down to buy a property. If you can’t save money aside to purchase a property, you simply can’t afford to buy one. House maintenance, municipal and school taxes, mortgage payment, house renovations and other expenses will be added to your budget.

You can usually start with a 5% cash down (if you want to buy a property of 200K, you need at least 10K cash) if you have decent debt ratio which is our second point.

Total Debt Servicing Ratio (TDSR)

This big name result in a simple mathematic operation: the total of your monthly financial obligation (car lease, personal loan, 3% of the balance on your credit card and line of credit, taxes, mortgage payment, etc.) divided by the total of your declared income.

Depending on the financial institution, this rate should not exceed 40% with your new mortgage payment. You can play around and negotiate, but if you take 40% as a maximum TDSR, you won’t get any surprises.

Credit history

No wonder a bank won’t give you the biggest loan of your life is you are a bad customer Your Beacon (Fico) Score will be the first indication of your credit behaviours. Than, they will look deeper in your credit report to make sure everything is in order. In the end, if your credit cards are not maxed out and you pay your bills on time, you should be worried.

Net worth

Your net worth is not the most important part of your credit application for a mortgage, but it is a good thing to keep it positive. A fast way to calculate it is to take your financial assets (bank account, registered and non registered investments, property and your car with a very small value). You don’t include clothes, painting, furniture or anything else that doesn’t have a “real” value. Then, you withdraw your debts (credit card and line of credit balance, personal loan, student loan, mortgage). Remember, a lease does affect your TDSR but not your net worth as you are not the owner of the good. As long as your net worth is positive, you should not encounter any problem applying for a mortgage.

The first 3 points are definitely the most important when it comes down to get a mortgage. You need to prove your ability to save money, that you are not too much indebt and that you paid your bills in the past.

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