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How to Get a Mortgage

I remember being a First Time Buyer and not really knowing what getting a mortgage entails, what default insurance was, and how to even qualify for a mortgage.

As a girl one of my favourite things to do was look at houses with my friend’s family. Every weekend they would go and visit open houses, and my friend and I would carefully examine what we liked and what we didn’t like about each house. Driving through different neighbourhoods we would each claim which house was “ours” and get really excited when we were able to “claim” one that fit within our dream house guidelines.

As I got older, I soon realized that there was more to buying a home than getting a good job. I had no idea that I had to have a down payment, good credit history, and a stable income. As an 18-year old, I maxed out my only credit card all the time because it was available to me. The bank told me that I only needed to make minimum payments on my card, so that’s what I did. I had no idea the affect it had on my credit score! Unbeknownst to me, my goal of obtaining my dream house was slipping further and further away.

Since then and becoming a Mortgage Broker, I’ve corrected the mistakes I made and have learned what it takes to get a mortgage.

There are 3 main factors that go into getting a mortgage approval.

1. Income
2. Down Payment
3. Credit History

Think of each of these as a leg on a tripod. In order to get the best rates and best mortgage terms, you need each leg. When one leg is not as strong as the others, it will make getting a mortgage more challenging.

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When lenders look at your income, they want to know how stable that income is.
Are you past probation? Are you on commission? Are you salaried? Are you hourly? Self employed? How long have you been working at your current employment?

There are two ratios that lenders look at when they are looking at whether or not your income will support your housing payments.

GDS (gross debt service) & TDS (total debt service)

GDS is the percentage of your gross annual income that will be going towards your mortgage payments, property taxes, heating costs and condo fees. Generally, lenders will allow up to 32% maximum.

TDS is the percentage of your gross annual income that will be going towards your housing, plus any other debts that you are paying. These debts include, but are not limited to, credit cards, personal loans, student loans, car loans, line of credit, etc. Generally, lenders will allow up to a maximum of 40%. Depending on your credit score, this maximum allowable amount may increase up to 44%.

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Down Payment

The minimum requirement for a down payment is 5% of the purchase price of $500K or under, and 10% of any amount above $500K.

example 1: Purchase price $200K = Down Payment of $10K (5%)
example 2: Purchase price $600K = Down payment of $35K = $25K (5%) + $10K (10% of 100K)

There are many ways to acquire a down payment such as accumulated savings, RRSP withdrawal, gifted from immediate family, existing equity, or flex down.

Flex down is when you used borrowed funds as a down payment. This can come from a line of credit, loan, or borrowed funds. The borrowed down payment must be calculated in the TDS ratio and must not exceed maximum allowable amount.

Any down payment amount that is less than 20%, the lenders will require you to pay mortgage default insurance through CMHC, Genworth, or Canada Guarantee. As the lender is lending a higher amount than the value of the home, in the lenders’ eyes it is seen as a higher risk of investment. This insurance therefore protects the lender’s interests in case of default. If you, as a borrower, would like this coverage also, an additional premium would apply.

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Credit History

Credit history is extremely important when it comes to whether a lender will approve you for a mortgage or not. This indicates to the lenders how well you have managed credit in the past, and whether or not you would be considered a higher risk to lend to or not.

Are you living on the edge with your credit maxed out often? Are you going over your limit? Are you making all of your bill payments? Have you had any missed or late payments? Do you have any credit history at all?

I’ve come across many people who have not gone any where near a credit card because of the trouble it has gotten others into. What they don’t realize, is that it takes credit to build credit.

Here are some guidelines to help build credit:

  1. Have at least 2 kinds of credit (or trades). Credit card + loan, credit card + line of credit… etc.
  2. Always make your payments on time! If you can’t make the full payment, at least make the minimum. Don’t make minimum payments a habit.
  3. NEVER go over limit!
  4. Ideally, have your balance less than 50% of your limit.
  5. Use credit – if you have credit and never use it, it won’t reflect in your credit history if you’ve never used it. Make $50 purchases monthly and pay it off to show credit usage.

For those of you who have less than spotless credit history, have no fear! There are other lenders that can make your home buying dreams come true with a higher interest rate, depending on your circumstances.

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What’s next?

Aside from the 3 main factors, there are also many other factors that go into the mortgage approval process. The mortgage process may be a complicated process, but for you, it doesn’t have to be! Mortgage professionals look at your specific situation and make a plan to achieve your home buying dreams. Mortgage Brokers work with many banks and lenders, and give unbiased, real advice to help you get the best mortgage for you and your family.

Contact your Mortgage Broker today to help you get started towards your new home.
Don’t have one? Give me a shout!
Rose Blankenagel: 250-299-6951 or [email protected]


-Real Advice for Real Life-