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 Notice of Assessment forms confirm that you indeed are earning an income and paying your taxes on time. In addition to this, a representative of the mortgage institutions will call your office to verify 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 GDS is the maximum percentage of your gross income that is apportioned to your monthly expenses. This includes payment for the principal and interest of mortgage, property taxes, heating and air-conditioning, and other dues. To qualify, it is important that your monthly expenditures do not go beyond 32% of your total monthly income.
TDS on the other hand is the highest percentage of your gross income that is used to pay the GDS and all other financial debts. To this ratio belong all other loans, credit cards payment, and everything from the GDS. To qualify for Canada Mortgage, it is important that your TDS does not exceed 40% of your total gross monthly income.
Your Credit History is a piece of information that is always brought up whenever loans and finances are the issues. The lenders are keen to know how impeccable your credit score is. If in case, it is not, you can use some programs that focus on re-building your credit score. To ascertain your score, there are free services offered by some websites that you can use.
The real estate property to be mortgaged is a critical matter. Mortgage lenders are concerned with the physical appearance and quality of the property. Generally, they conduct a thorough inspection of it.
The real estate property is the lenders security in case of non-payment. Lenders are very cautious that the real estate property should still be in perfect condition for re-sale, in case of default. Hence, a property appraisal by the lender is a requirement before a Canada Mortgage is granted.
Finally, the down payment is not so much an important requirement because many mortgage programs provide 100% financing. Nevertheless, if you can offer 20% or more of the total mortgage price, the Canada Mortgage lender will not require default insurance.